Sunday, January 01, 2012

Investment Strategy for 2012

2012 is predicted to be another tough year from analysts. Euro zone problems, US weak economy, China issues etc. But as readers might have noted at the start of 2011, analysts were predicting that the markets will continue to run ahead and the outlook was good then.

Therefore, do take those predictions as a pinch of salt. Yes, there were issues yet to be solved but that is where you can buy cheap from the market. Do not be afraid to buy when things doesn't look good. The key is to spread your investments and don't commit all in one go. Also, do remember to diversify your assets.

What will be my investment strategy for 2012? Well, they can summarized as below:

1. Continue to seek value. Value investing had served me well since the 2nd half of 2010 when I decided to position my portfolio more defensively when the markets had run up substantially after the Global Financial crisis. I will continue to avoid high growth stocks at this moment.

2. Reduce costs. Again, I will try to minimize sell trades to save on costs. I will not hesitate to buy multiple stocks to diversify my portfolio but I can control the sell trades by not engaging in switching or sector rotation activities.

3. Continue to engage in rights issues. Rights issues are good opportunities for investors to continue to increase their stake in companies via excess rights shares strategy without incurring brokerage costs. However, in a weak market, investors must be selective and only commit capital in those companies that are well-managed. Therefore, though I will still employ this strategy, I will be selective in the companies that I will subscribe for excess rights shares.

4. Participation in scrip dividend scheme. Scrip dividend scheme is a good way for investors to re-invest their dividend back into the company at a discounted price, without incurring brokerage costs. In 2011, I have participated in quite a few of these schemes and they had bear fruit, especially for those high dividend paying stocks like SP AusNet and Second Chance Properties. The compounded return of re-investing the dividend payout back into high dividend stocks will yield higher absolute dividend the next time the dividend had been declared, even if the amount declared is the same. Therefore, don't discount the effect of scrip dividend scheme.

5. Continue to overweight better stock ideas. I think readers would have noticed from my stock purchases in 2011 that most of them are my existing stock holdings. This is because since I had became a full-time investor, I have decided to focus my research effort on my existing stocks and also add more capital onto them. This is a slight change in my previous strategy of diversification across all stocks, without concern on their individual weights in my portfolio.

6. Match cash flow with expenses. Since I am now living on my investment returns, I do not have consistent income every month. Though I still receive income in a form of dividend from my investment, they are inconsistent every month. Therefore, I need to preserve some cash during low dividend paying months to pay for my expenses. This will result in cash drag in my portfolio for some months, but that is a tradeoff for matching cash flow with expenses.

7. Work on my CPF stock investment and CPF unit trust investment. Since I had left my day job, I did not receive any CPF contribution every month. Therefore, I had not been buying any stocks using CPF funds since then, as my CPF stock investment limit had not been increased. Also, since I had transferred those dividends received from my CPF stock investment back to CPF-OA, the stock limit has actually gone negative, due to lack of fresh CPF contribution. The CPF stock investment limit has been a pain in the neck for me, as I could not continue to invest in new stocks even if I have funds from dividend distribution. I might need to make some minor changes to my CPF stock investment portfolio. I have also neglected my CPF unit trust investment in 2011, and I need to review those unit trusts again and determine action plans (if any) for them in 2012.

All in, there are a lot of things to be done. Besides managing my own portfolio, I will still actively attend AGMs/EGMs. To all readers, have a great year ahead!



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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