Why it is so difficult to invest long term

Long term investing is difficult at this age reason being for the explosion of information.

Imagine buying a stock and then seeing the stock price goes down. It is not an easy feeling.

With current trading apps, you can get a overall view of how many % of your stock  you have lost on paper. The converse is true.

When you see yourself sitting on a hefty profits (once again on paper) it is difficult to curb the urge to sell the stock.

For myself, i will remind myself of the potential price that the stock will reach and that how hard it is to find an undervalued stock. Hence so far I have been able to rein in my urges.

One piece of advice that i always remembered from my father, was that it is very hard to save money when you started working. He stressed that 100k is what a person can normally save in 10 years.

I started working when I was 23. Sad to say after working for a decade, I did not even managed to save 50k cash after buying a car and house.

Hence calculating that i work 25 to 65, I could likely save 200k.

Imagine retiring with 200k, this can only last 6-7 years and worse shorter if I were to have any illnesses.

So if my investment has the potential to rake in huge profits, I will patiently wait even if it takes 10 years.

Stock picking time again

The year 2017 is ending in 3 weeks time. As we move to 2018, come the time for me to do my homework to pick the stock to invest in 2018.

For the next stock to invest - am thinking of going into healthcare industry.

Refinancing

One of my biggest debt is my hdb flat, for which I took up a bank loan. Not because of the low bank interest rates but more because we are not eligible for a hdb loan.

Personally I would prefer to have a fixed interest rate loan for 25 years so I can have peace of mind, not having to worry about fluctuating interest rates. Along which comes fluctuating monthly instalment.

We took a 2 year fixed interest loan from UOB. Recently the 2 year is up, so I went hunting for refinancing packages.

I asked UOB for refinancing package but because there are upfront fees, I decided to refinance with other bank. That is where i chanced upon posb loan. They offer fixed interest rates for 4 years. So far this is the longest fixed rate tenure. I need not have to fret over the loan every 2 years. In the end, I refinanced my loan with POSB.

Another question that were burning in my mind were whether i should make partial repayment using my cpf OA monies. I pondered over this for quite some time.

Eventually I decided not, so that if i were to become jobless, my hdb loan could still be sustained using my cpf OA monies for a while (1-2 years).

You don't have to be right all the times

Recently I had been listening to some of warren buffett speeches on youtube to see if I could gain some wisdom from his wise words.

There was one speech where he mentioned that investors do not need to be right about all the companies. He just need to be right about SOME.

And he asked the audience to imagine that they could only invest 20 companies in their whole life, what would it be.

I pondered over this and reflected on my strategies.

I only invest 10k a year. Assuming I do this for the next 30 years, i would have invested in 30 companies or less in my entire life. This synch with Warren Buffett.

There is no need to know everything about all the listed companies. One should just focus on a industry and learn as much as possible about the business.

Investment principles that resonates

Earlier I told that I bought 2 taiwan books on investment.

The first book was on understanding financial news. The second book was on technical analysis.

I will touch on the 2nd book. I am biased about technical analysis mainly because Warren Buffett doesnt believe in it. He studied technical analysis but he realised that the charts were right even if it was upside down.

Because of this, i didnt want to waste my time studying something that was not going to be useful. So i turned to fundamental analysis.

A large part of the book is on technical analysis which i skipped.

But there were parts that resonate with me. The author advocates that

1) investment period - minimum 10 years to reap good results

2) divestification - with only a few hundred or thousand dollars, you cant divest by buying different stocks. Hence he advocated just buying one stock each time

3) buying only good stocks - for me, i buy sg long established companies

4) dont look at the stock price daily - this is not easy

One of the stories shared was of people who did not earn alot but they conscientiously accumulate stocks with the extra money saved each year. Over 10, 20 or even 30 years, the dividends can become substantial.

For me, the dividends from my investment is about a month of my takehome pay. This is akin to me receiving one more month of bonus every year.

Although it is still quite far from replacing my income, it is a goal that i continue to pursue coupled with capital appreciation.

Many people are afraid of investing in stocks. But they wouldnt think twice when it comes to property investment.

Indeed I heard stories from friends or colleagues of someone they knew whom have accumulated passive income from buying and renting out properties.

For me, buying an investment property involves coughing up huge cash outlays. It takes years to build up the cash. The risks of buying an overpriced property is similar to paying too much for a stock.

There is a chance that the stock company will go burst and one is left with worthless shares. Whereas for property, the property would still be worth something.

A question that I constantly ask myself, if given 1m to invest, what will I invest the monies in.

In the past, my answer would be to buy a 500-600k property and rent it out. And invest the remaining 400-500k in stocks.

But the above is just my wishful thinking. I didnt consider the reno costs, stamp duties and the hassle of finding a good tenant etc.

Considering that there is little hassle in buying stocks, my answer would be investing 70% in stocks. Remaining to settle my hdb loan.

Taiwan trip

Spent the past 8 days in kaohsiung and tainan, not for vacation. But for family medical reasons.

During these 8 days, I realised

1) I should be grateful to have a stable job. Heard from the locals that the economy in taiwan is bad and the unemployment rate is high. The night market at liuhe is very empty (i went there on a weekday). Felt mixed feelings because if it was crowded, i will be damn pissed. But if it is empty, felt sad for the food vendors.

2) grateful to have a healthy body. My family stayed in a ward in tainan hospital for 5 days. During those 5 days, i were bombarded with scenes of sick elderly and young people. It was saddening to realise I am wasting my life when these sick people are desperately clinging to life.

3) tried to learn some financial knowledge from their books. I bought 3 books , 2 on financial related.

Read some chapters on one book which is focused on technical analysis. I still do not really understand the technical analysis portion but some of the principles that the book teaches resonates with me. Will share them in my next post.

The right price

The common adage in stock investment is buy low, sell high.

How low is low, how high is high?

If it is common sense to buy low, sell high, many investors would have made money in buying stocks.

For me, I also have some difficulty in determining the price of stock to buy and when to sell.

To buy - Once I identified a stock that I am keen to own, I would first comb the latest financial results to get the net asset value figure (NAV).

Once I get the figure, I would check the current stock price.

So if NAV is $2 and the price is at $1.50, I would be jumping with joy. But before I rush to buy the stock, I would google to see if I could get the historical prices of the stock for as long back as possible.

Using back the same example, if after checking the history, the current stock price of $1.50 is at an all time high, I would not make the buy. Because this would be akin to buy high in the hope that the price will rise even further which is a gamble.

The ideal scenario would be the history showed that the current stock price is either at an all time low or the stock has declined. This would signal a buy for me because this is when I can buy low and sell high later.

However, there is some caution here. Do not just buy into any stock just because the stock price is falling or at an all time loan. I had some selection criteria (which I have shared in my earlier post) to pick established companies with good track records. So on top of this selection criteria, I used the above methid to determine the price that I would buy the stock at.

To sell - in my early days of investing, I sold my stocks after making 30% profit.  When I looked back at my decisions, I regretted because I could have made 100% or even more if I had held them longer.

Hence now I invest monies which I could afford to hold in stocks perpetually without needing to sell. This gives me no time limit to realise as much gain as possible. It would be too stressful to try to make some gain with a set period since the behavior of the market is unpredictable and beyond our control. The greatest gain could only be realised if one is patient.

Diversification

Whenever I hear or read about diversified or diversification in investments, I have mixed feelings or thoughts.

To truely reap substantial investment returns, your porfiolio cannot be too diversified.

E.g $100 is used to buy 1 share of 10 different stocks @ $10 each. 1 year later, the 10th stock doubled to $20/share. Total value of stock is $110.

Now if the same $100 is now used to buy 2 shares of 5 stocks @ $10 a share, and the 5th stock doubled. Total value of stock is 80 + 40 = $120.

The converse can be said if the stock price dipped.

For me, the no. 1 reason for buying share is to reap capital gain and earn passive income in the form of dividends. My goal is not to avoid losses. Hence if my investment is so diversified that a substantial gain (very hard to come by) is translated into a meagre increase in the value of my investment, then I would rather not invest.

I apply diversification by investing in a few stocks (less than 5 now). Even though there is a possibility that my stocks could tank, as long as I did not sell my stocks, the reds(losses) are just temporary.

My current portfoilio

I decided to take some time to go over my current portfolio of stocks.

I use a simple rule of thumb for deciding how much of my monies to invest. The rule of 100 - (current age). 

I am 34 this year, and so that means that I should be investing 66% of my monies. Currently I have more than 80% of my monies invested.

As of now, I have exhausted investing my CPF OA monies by buying Capitaland and Hong Leong Finance (HLF). When I decided to buy HLF, I calculated that the dividend yield is >2.5% (OA interest rate) based on the entry price of $2.28 and that was one of the reason I bought the shares.

On hand, I still have around 20k (6 mths rainy cash) to cater for situations (loss of job / emergency fund).

My stock buying only happens once a year because I set myself a yearly target to invest 10k (new funds).

My target is fulfilled this year when I bought 20k Boustead shares @ 0.89/share.

In 2016, I bought 20k Keppel Corp with the monies my father left me when he passed away in Oct-15. This was one of the biggest stock purchase of my life but I decided that leaving the monies in the bank is not doing myself any good as the interest rate is too late. I do not wish to spend any of the monies that my father left behind hence I decided to lock it away by buying shares in KC and chuck it out of my sight.

In 2015, I bought 10k of HLF using my CPF monies.

Active investing is not good because there are fees for each buying and selling of stocks. Although the fees are not very much, doing it weekly or monthly will erode the returns of the stock purchases. Another reason for not doing active investing is that one will not be able to see how high the stock would otherwise have risen to. 

When buying a stock, I would have a rough gauge of what kind of price would I sell this stock for. For KC, I do believe it has the potential to reach $20 but this would take many years.For Boustead, i thought it has the potential to reach $2, $4 for HLF.

Recently am thinking of making a career switch to fund management but without a degree, I believe pursuing that would be hard. When I reflect on my strategies, they conflict with what fund managers are doing. 

Active investing + annual % of management fee which will most certainly eats into the returns of the stocks

This is one reason that I also do not buy unit trusts.

Investment is a psychological game

Recently I bought a few lots of Boustead. Since then, I seldom check the price of the stock.

I was trying to practise what Warren Buffett taught. When you buy a stock, you buy thinking that the market will close for the next 5-10 years. If you can't do this, don't even think of buying and holding the stocks.

My investment goal every year is to invest a fresh 10k into stocks.

This is a goal that is attainable. Although my ultimate goal is to make a million dollar, I need to start small and 10k a year is my baby steps.

I had a lunch conversation with my colleague last week and we briefly talked about stocks. She told me her mum bought SIA when it was 15 dollars a share and is holding onto it as the price have drop to around 10 dollars.

It reminded me that when buying a stock, it is no different from buying a property. You would want to make the purchase at a reasonable price. Hence the entry price of a stock is very important.

For me, when I bought my HDB, I looked at past transaction prices. Same for stocks, I would look at the price history for the past 10 years. Coupled with the nav etc, I could determine a reasonable buying price.

Boustead SG - a chanced discovery

Boustead, a long established company in Singapore.

I came across this company today while continuing my research on SG stocks.

I must admit when I first came across this stock, I was a bit skeptical as I cannot associate anything with the name. Maybe I was not as well read as I thought I was.

Nevertheless, I decided to pry abit deeper.

Using my own criteria, the company has enough cash holdings to settle its current liabilities. It is listed in SG since 1975 and has weathered so many financial storms.

From a business point of view, it's business is spread across energy, real estate and waste water, mainly focused on energy.

As oil and gas industry is still far from recovering, the company still manages to be in the black.

And holding onto cash now is better given the uncertain times, hence I am certain the company can ride out the tough times.

It's share prices have halved and although it is still trading above its NAV (something I used to measure my margin of safety), I decided to give this company a shot.

Dividend payout is not great but still decent. @ a price of 0.865, the 2 cents divident payout is 2.3% (still better than the bank rates).

This is one company that I may consider buying soon.

Dry spell

Recently after ditching the idea to invest in reits. I have not found any stocks that I thought could invest in long term.

Guocoland came up recently in my radar, as well as wheelock properties.

These 2 counters are trading below their NAV by a large margin. But when I look at the stock price for the past few years, the stock has stagnated at the price it is trading.

Of course, price history does not really tell you how high the price could rise in future. But without a history, I find it difficult to take a leap of faith.

Gleaning some insight from Warren Buffet whom bought Apple shares recently. He bought Apple shares when the stock was dropping. He discontinued to buy after the stock starts to pick up. Of course the idea is not to buy blindly into any stock just because its stock price is falling. The lesson that I picked up is that no matter how good the company is, the price of the stock is important and if it exceeds the price that you have of this stock in mind, it is not worth while to buy as demonstrated by Warren Buffett.

Meanwhile, the hunt for sg stocks to invest my monies continues.

Reits

I have been thinking about investing in Reits the past 2 months mainly because of the dividend/distribution yields.

I did some googling (these days one can easily find information on the web) on sg reits and came across some very detailed analysis covering this topic in some financial blogs.

Overall it would seem that the analysis are positive towards sg reits.

But after thinking about the business model - Reits distribute out most of it profits and grows it business by buying more assets to generate a higher revenue. I could not convince myself on the business model - Reits does not retain its profits to fund its purchases, the monies has to come from the shareholders by issuing new reits and taking out debt.

Low debt is one of my criterion for picking stocks. Af some mulling, I decided not to add sg reits to my portfoilo.

My misses

In my previous posts, I had mentioned my hit stocks, stocks which had made me money.

In this post, I will share my misses.

When I first wanted to start investing in stocks, I know I want to do the investing myself but back then I did not even know where to start. Should I open a brokerage accounts with banks or other firms?

Then my elder sister opened an account with POEMS and started buying stocks. She encoraged me to do and coincidentally POEMS had a temporary booth at clementi MRT and I just approached the guy there and sined up for my POEMs account.

Next, I learnt the mechanics of how to buy stocks using my POEM account from my sister.

Some of the first few stocks I bought were 1) Super Group 2) Raffles medical 3) ASL Marine 4) Comfortdelgro.

I bought in small quantities around 2-3 lots per stocks using cash.

It was quite an exciting moment to key in the quantity to buy and the price.

One of the stocks that i have lost money in was ASL marine.

I boughts 3000 shares in 2008-2009 at $1.01/share.

That was almost 8-9 years ago. I didn't keep a diary to record down my reasons for buying the company. I only started to do so from 2013 onwards.

Back then, I vaguely remembered that I just solely looked at the company's financial statements without considering the industry's oversupply that had plagued many similar companies and whether ASL had the ability to ride out the crisis.

The stock price went down and even down when there was a bonus share given, i was given a bonus of 1200 more shares and the share price continued to stay down around 0.68 and that was when I threw in the towel and sold off my shares to free up monies that I could use to buy better shares that were trading at bargain prices.

I lost approximateky $200 and this was my first real paper loss.

I counted myself lucky that I only lost this bit of money but I learnt from the mistake.  I have forgotten to ask myself honestly if I believe the company can survive tough times.

Then on, I had some reservations whenever it comes to buying smaller player companies because I was not confident if the company can survive tough times.

Of course big companies do fail such as the Lehman Brothers case. But I felt that the chances of big companies failing are definitely lower than that of small cap companies.

I steered clear of penny stocks and also china based stocks.

Some food for thoughts

The past few months had been a roller coaster ride especially for holders of Keppel Corp (KC) stocks.

The oil prices had been going up and down. I find the behavior of oil prices similar to Mr Market (a term that Warren Buffett had used to describe the stock market).

It is quite an excruciating experience to see the rises and falls of KC price along with the oil prices. Where possible, I would try not to look at the stock market prices but I find myself checking the stock price almost twice a day.

It is quite difficult to detach your emotions especially if you see red (red color meant the stock prices have fallen compared to the day before).

How i cope with the roller coaster ride is by treating the stock market as Mr Market. From the perspective of a seller, on days where the stock counter shows red, I would imagine that Mr Market is in a foul  mood and is offering you low prices for the stock that you hold and he will return again with a quote the next day regardless you reject his offer today or not.

On days where the stock counter shows green (price has risen compared to the day before) I would imagine that Mr Market is in a euphoric state and is offering you higher prices for the stock that you hold. Once again he will return you with a quote the next day regardless whether you have accepted his offer.

Warren Buffett would tell you not to buy stocks if you could not stop checking the price of your stocks. Yes, this is true but with many phone application that allows one to view the sg stock price at a simple touch . It is a bit tad hard to put this into practice. Nonetheless I personally use the stocks app to monitor the prices of stocks that I held or am interested in, NOT because I want to sell my stocks but to make a decision to BUY MORE.

SMRT

I bought 15,000 shares of SMRT in 2014 at around 1.07 a share.

Why i bought SMRT?

I know it will never fall even though it was rattled with lots of complaints due to the frequent breakdowns.

Because of that, its stocks plummetted.

The price of 1.07 was one of the lowest prices that SMRT has dropped to before.

I knew it is a recession proof stock because people has to take the mrt to work/school regardless good times or bad times.

I did not consider too much because it was not a good dividend paying stock. I bought it purely because it had the potential to move upward.

Sold all my stock in Feb 2016 @ S$1.625.

As i wrote this, SMRT had already been privatised and delisted.

Sharing this piece to show how my strategy would change if I saw an opportunity.