Thursday, May 29, 2008

My investment philosophy

Networth

Above $200,000. It was accumulated from my childhood ang bao money, yearly school book prizes, scholarship stipend, part time work and tuition while in NUS and the past 4 years at work.

Asset allocation-100% equities

I invest 100% of my cash in equities. I believe in contrarian approach and will lock in profits whenever I feel I can liquidate my current holdings and invest into higher yielding instruments.

Many investors might think I can grow my cash easily by seeking professional advice or investing all of them into higher yielding instruments. However, I prefer to do things my way and learn along the way. The trials and tribulations I have to face will only make me grow stronger and sharpen my investment instinct. Investment is not only about the destination, the journey is half the fun!

Risk tolerance

I do not have high risk tolerance and will avoid investing in equities that are highly volatile in nature. S chips, penny stocks and commodities are almost out of my consideration. Unless I have strong reasons and have done due homework, I will not invest in them, at least in the near future. In fact, as you will see from my portfolio of stocks later, you can see the blue chips I invest in are extremely stable in nature and have low price fluctuations.

Recurring income

I invest with the priority of having recurring income, followed by capital appreciation. Hence blue chip companies that provide consistent dividend yield of 4% and above 50% dividend payout ratio are within my investment radar screen.

Some of the stocks I like are banks, telecommunications, transportation, media and oil rig companies.

As I already have about S$200,000 in investments, I do not need to subject any single cent of my money to any unnecessary risk. I just aim to grow them at a single percentage annually to provide a recurring income for myself.

Philosophy

I imagine myself as an ancient man. Everyday upon waking up, I face the choice to hunt for food or toil my little land. If I choose to hunt, I may get lucky and catch several deers or hares for my family. They will get to eat nice red meat for weeks. It is a high risk but rewarding activity. In fact, it can be addictive to carry on hunting as the hunter relish on challenges and the rewards are enticing!

The risk here is that the hunter might get killed in the process and the game is over. Or simply, I come back home empty handed.

If I choose farming, I will need to be patient. I may often go hungry but slowly and surely, I will be able to claim my harvest and feed my family. I may save a bit of the grains harvested and expand my farming area or simply sell the grains for some pigs to rear. Of course there will be times of poor harvest, but at least I know the land and farms outside my cave is mine and good times will come eventually.

In time to come, my pig farm, wheat field will be producing much more than what my family need. I can then sell the excess and start taking over land of other lazy cavemen. I might diversify and build up a fruit orchid as well!

I can see the fruits of my labour literally, just outside my cave. I am in control and I believe I can become a wealthy ancient man eventually.

I apply the above imagination to my stocks selection. I do not invest (like the hunter) in high risk instruments such as warrants and futures as I can lose everything overnight, although it is exciting and lucrative. I do not trade on margin as the interest rates are exorbitant.

Instead, I invest like the farmer. I select stocks that pay good dividends in good and difficult times. They are bread and butter, yet boring to own stocks. The recurring income helps to pay for my bills initially but soon, I can use the excess dividends to buy even more stocks. There is no need for me to risk hunting and lose everything I have.

Eventually, I will become a rich modern man.

Unit Trust (UT)

My unit trust portfolio is globally diversified across regions, sectors and asset classes. I try to apply industry’s best practices such as modern portfolio theory, diversification, and passivity on my UT portfolio. 50% is invested in an index fund (S&P 500), while the rest are invested in Asian equities. They are currently down by 20%.

1 comment:

bk said...

Very impressive portfolio for someone who is only in his late twenties! I am in my mid to late twenties too and my portfolio is no where near yours.