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Thursday, February 15, 2007

Questions, Questions, Questions......

I knew that when I have started displaying my top 30 stock holdings here, I would invite a lot of questions. Today, I read an investment forum and there are some queries on my portfolio.

1. One of the major question that often pop out is whether this portfolio was started in 2004. My answer is no, this portfolio was not started in 2004. It started in 2001. I only start tracking it via my blog in 2004, since some people are curious of the stocks that I am holding and I thought it was nice to share with some people out there.

So, yes, this portfolio had ride out storms like 911, SARS etc. It is definitely not one that only "enjoy" the ride of the bull market for the past 3 years.

In fact, I started investing at the worst possible time. That was in late 1999 (at the peak of the tech bubble) when I bought my first investment - an ILP. I live to regret that decision to this date but I have learnt my lesson. I have since moved to unit trust investing before starting my stock portfolio in 2001.

2. Another question people often asked was that how do I manage to keep track of so many stocks. Well, my answer is that there is no need to keep track at all. Since I hold a diversified portfolio, any one stock that tanks will have little impact on my portfolio. So, no worries if there is a profit warning on one of my holdings. I just collect dividends from my holdings every month and seek to re-invest those dividends or use them to pay for my monthly expenses.

I always stress that one should adopt a portfolio view when constructing a diversified portfolio. Which means, if your portfolio is overvalued, you should seek to add more undervalued stocks to bring it back to fully valued or undervalued levels. Constant switching of stocks will only add to the stress level of maintaining a portfolio and it is not good for health. Also, imagine the commisions that you will be paying if you keep switching your holdings or getting in and out of the market. You might not notice it, but commisions add onto the cost of investing.

If you can sleep nicely at night without being worried about market movements, I think you would have done well.

3. Another question often asked. Do I go in and out of the market? My answer is related to 2. and it is no. I strive to be 100% invested at all times, be it bull, bear or range market. The opportunity cost of not being invested is higher than trying to get into the market at the right time. Some people might think that they do not want to be in the market when it is going down. But remember that not all stocks go down in a bear market. If your portfolio is well constructed, it should not go down as much as the STI. Also, you collect dividends in the meantime and add more holdings in your portfolio when stocks are down. Good companies will pay you dividends even during bad times.

4. How big is my portfolio? This is a very sensitive question. I would only reveal that it is a 6 figure portfolio, definitely enough to purchase at least a HDB flat fully paid for.

5. Do I use leverage to invest in this portfolio? Answer is no. No CFDs, no margin trading, no contra, no investing using borrowed money, no share financing etc. Invest only with excess money that you can spare.

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10 Comments:

Blogger Aragorn said...

Hi ghchua,

Thanks for consolidating your strategy into one concise post.

By the way, you don't have live bookmarks enabled for your blog?

Regards,
aragorn

9:34 PM  
Blogger ghchua said...

Hi aragorn

Nope. Actually, I intend to use this blog as my top holdings portfolio listing. A once in a month kind of posting.

But it seems that it has become more like a blog nowadays. Will explore this option if I have more posts in future.

10:36 PM  
Blogger Ben said...

Hi ghchua

You mentioned that you will stay 100% invested. Do that mean that you do not have significant amount of warchest to take advantage of possible crisis?

Ben

4:40 AM  
Blogger ghchua said...

Hi Ben,

My answer to your question is simply yes. Crisis only comes once in a while and I do not want cash sitting around earning low interest rate. What has to be invested needs to be invested.

However, I do have consistent income through dividend payout from my stock holdings, which allows me to invest back into the market every now and then, with or without crisis.

7:48 PM  
Blogger Ben said...

Hi ghchua

Thank you for your reply.

I think that this is one of the best strategies to adopt so as to enjoy the ups and down of the market. The investors will get to receive the dividends which can be channelled back to the market to receive more dividends.

You are right that there is no point in letting the cash siting around to earn the low interest paid by the banks. Moreover, there is also risk in depositing the money with the bank especially in the event if the bank closes down. While the possiblity of the closure of banks in Singapore is remote, we cannot rule out this possibility. If this happens, the cost of total losses is not worthwhile especially for this pantry low interest.

Currently, I am pondering on which type of strategies to adopt in investing on long term. No doubt, I am for dividend investment and aim to live on passive income (annual expense). While I can still rely on my full-time employment to pay for my expense at the current juncture, however I want to pursue my interest while I am still young and able to do so.

Now I know on the type of strategy which I am going to adopt.

Thank you.

Regards.

Ben

9:07 PM  
Blogger ghchua said...

Hi Ben,

Dividend is not the only way to extract income from the market. Sometimes, there are corporate actions like takeover offers, capital reduction etc which returns your capital back so that you can re-invest them back into the market.

A lot of people asked me why I had been able to buy stocks from the market when I have no other income source as I am not working. If you had observed, a few of my top holdings this year had been taken over (i.e. Viz Branz, Guthrie GTS, and now even Superbowl is a target) plus capital reduction from F&N. These are the bonus one can expect from investing in the market, plus the regular dividend. Yes, I don't consider dividend as a bonus, just regular income.

Another misconception one had which I addressed in this post on my portfolio is the point on overvaluation of stocks. Yes, some stocks in my portfolio can be overvalued but it doesn't mean I will sell them. This is a bit different from what investment books teach us which says one must sell if a stock is above its intrinsic value. The reason is that I manage my stocks on a portfolio basis. Some stocks can be overvalued, but as long as you buy more undervalued stocks, it will move the needle back to normal level.

Therefore as you can see, I spend most of the time searching for investment ideas and looking at my portfolio on a whole rather than trying to time the market to buy/sell stocks.

1:31 AM  
Blogger Ben said...

Hi Ghchua

I agree that other than dividend, there are also corporate action which returns the capital back to the investors.

I used to opt to sell the counters which aee considered to be overvalued when the markets improve. These counters can deliver an annual yield of 10% to 20%. I sold these counters so that I can lock gain (can total about 50% of the yield). In other words, I had received the dividends (which I will receive in 5 years' time) at the present time. The fund can be channelled to other investment opportunity. I will aim to buy back such counters when it retract during the crisis.This used to be my strategy.

I opt to change the approach as I am planning to retire from full time employment now instead of a few years later. I need to ensure that I am able to generate substantial amount of passive income (from stocks) to support my expenses (current lifestyle). Of course, I will need to rebalance my portfolio and put it on trial basis so as to confirm whether it is feasible.

I have no problem working a few more years to generate more income so as to be more secure with the retirement plan. However, I may not have the energy to enjoy life full when age comes into the picture. If I can retire earlier and focus on doing the things that I yearn for, why not? We only live once and it matters to me that I have fulfilling lifestyle.

Ben







6:02 AM  
Blogger pengster said...

Dear Ghchua,

Thank you for your sharing.

Did you terminate/surrender your ILP prematurely or did you continue with it despite the loss?

If you did terminate it, how much did you lose?

Thank you so much.

11:08 PM  
Blogger ghchua said...

Hi pengster,

Those ILPs that I bought last time were single premium ILPs, which incur an upfront sales charge with a token 125%-300% coverage on my invested amount.

There is no premature termination for single premium ILPs. You can terminate at anytime. However, for regular premium ILPs, it is more complicated as it might be tied to your insurance coverage and you need to consider how much you have "lost" in your premium paid in the initial years and whether you are still insurable after termination.

I have never gone into regular premium ILPs as I believe that insurance and investment should be kept separate.

7:36 PM  
Blogger pengster said...

Thank you ghchua!~

I agree that investment and insurance should be kept separate. Regret learning it now after I am already locked in.

11:26 PM  

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A self-directed investor, looking to invest for retirement needs and bypass all those expensive financial planners/insurance agents. Investing is fun, profitable or most important of all, knowledge gained is useful for the rest of your life!

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