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.