Thursday, September 18, 2008

Preparing the worst outcome for my portfolio

I have invested almost all my available cash into the Singapore stock market. As regular readers know, my investment strategy is mainly income investing, with preference to low volatility stocks as main components of my portfolio.

When I purchase stocks, I try to ensure that the dividend yield is at least 6%.

How much risk threshold am I looking at? Is my current portfolio aligned to my risk tolerance?

If I were to say that I feel absolutely nothing to the current market and whistling everywhere I go, I am lying!

The market is indeed worrying!

However, I am prepared to reduce my expectations of dividend yield from my entire portfolio to 3% PA.

This means that from my $300,000 portfolio, I expect my total yearly cashflow to go as low as $9,000 or $750 monthly.

The initial target was $18,000 or $1,500 monthly.

After reducing my expectations, I heave a sigh of relief. I am sure $9,000 a year is still decent dividend payout, compared to leaving money in the bank.

If the market does recover, I will be looking at 10% gains or more.

Meanwhile, I will continue to invest my dividends and free cash back into the market whenever possible.

It is time to avoid timing the market!

I will only subscribe to one belief now: 手中有股心中无股! (Stocks at hand but stockless at heart!)


musicwhiz said...

Hi SG Blue Chips,

You can make use of volatility to buy shares cheaply which have been sold down at fire-sale prices due to forced selling and margin calls. When people dump assets at crazy prices, that's when you can get assets at equally crazy prices for the long-term.


nhyone said...

This is easier said than done. :-)

Current prices are 20-30% cheaper than my entry point.

1. Have I used up all my cash?

2. If not, do I use up all my cash now?

For (2), what happen when prices fall another 20%?

Low compared to the past doesn't mean low compared to the future.

Anyway, I believe the market will be good in the next two weeks due to lack of bad news.

Sgbluechip said...

I agree with MW. However as mentioned in my posting, I have more or less depleted my free cash and can only invest next month when I receive my pay.

As long as my purchase price is lower than the average price of my stocks, I will go ahead to buy more to top up my portfolio.

It is too late to sell now, hence I would rather buy.

financial freedom said...

I think if one is looking at a longer term perspective (i.e. holding period of 3 to 5 years), buying shares now is quite a good option as many of the share prices are near their 52 week low.

If I had lots of free cash, I will start buying regularly from now till mid next year and stop watching all daily price movements of my shares that will lead to irrational trading

Sgbluechip said...

Actually stocks are at 100 weeks low. Definitely good time to invest for the long term.

The thing is, when your portfolio rises 20% a month later, can you keep the faith to "invest for the long term" or take profits immediately?

nhyone said...

If I weren't vested, I would have bought at current valuations. They *are* attractive.

But I am. Should I increase my holdings? It's not so attractive anymore, because it would tie up more of my cash, which leaves me in a very vulnerable situation.

I believe that the market can still go down another 20-30%, that's why I sold some of my stocks at 25-30% loss.

That was before I read the string of good news, which would last for the next two weeks, at least.

Sgbluechip said...

Hi nhy, as long as you invest later at a lower price, you would have effectively made a contra gain.

However, it the market drops further and you do not invest until it exceeds your purchase prices, you would have realised your loss.