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.