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!



Blogger Guru said...

Very diversified UT portfolio you have, I see that you had made good returns, congrats!
My UT portfolio are still bleeding..probably coz I did not diversify enough..

8:09 AM  
Blogger ghchua said...

Hi Guru,

My UT portfolio is currently being constructed using purely CPF funds (CPF-OA and CPF-SA). To be very frank with you, I have faced several challenges when trying to maintain the UT portfolio.

Firstly, some of the funds are no longer in CPF-IS (i.e. CPF Investment Scheme). Therefore, I could no longer add new monies into those funds. No thanks to CPF Board trying to get those under-performing funds out of CPF-IS, at least they should allow existing holders to continue to invest into those funds. Otherwise, one might have to do a switch to a similar fund in the same sector/country.

As you might have known, I hate to switch stocks, let alone switching funds, which is subjected to the fund manager's performance. What I can do now is to just add onto my better ideas and leave the other funds as it is.

Similar to stocks, one should seek to diversify their UT portfolio not only via country/sector/asset allocation but also with different fund managers. Some managers adopt value style, some growth, some a combination of growth and value. It is important to have a well-diversified UT portfolio rather than selecting only "star" fund house/manager or hot countries/sectors to invest in.

7:36 PM  
Blogger JTK said...

Hi GHChua

Thank you for sharing your 2012 investment strategy.

I have some doubts that stock investing makes someone richer compared to pure saving or bond investment. Can you share your experience on stock investing in terms of wealth builder? And do you have any cash investment in bonds?

How do you diversify your stock portfolio?
One stock per industry, a few stocks per industry, equal allocation of growth and value stocks, cyclical and non-cyclical, large vs small cap
In the process of stock accumulation, which stocks are to be bought first?

I have some difficulties/uncertainties in assessing whether the company can grow in the future or not. How do you make your assessment and manage the uncertainties?
I have found out that good business normally had higher valuation. So value investment may skip the good business based on valuation ground. What is your view on the value investment strategy?


9:52 PM  
Blogger Guru said...

Hi GHchua,

You are quite aggresive to use CPF-SA to invest.
Have you been holding the UTs for quite a number of years?

11:01 PM  
Blogger ghchua said...


With a long term investment mindset and a diversified portfolio, stock investment can be profitable. The return from stock investment is not only from capital gain, but also dividends collected over the years.

I don't have cash investment in bonds currently. But I may reduce my stock allocation in future as I grow older.

In terms of diversification, what I did last time when I was in full-time employment is to diversify across almost all stocks listed on SGX. I bought a little of each stock and then start to analyze each of them in more details. As years gone by and I am more confident in my research, I begin to overweight stocks which I felt are undervalued and have more potential to outperform.

The stock to purchase each time during accumulation varies. I might like the stock very much but because it is overweight in my portfolio, I may not want to add more. It is a combination of the attractiveness of the stock vs portfolio risk management.

Attend more AGMs. Talk to the management and directors. You can gain more on the prospects of the companies. It is an art, not purely science to make your assessment on future prospects of companies. Experience also counts. The more experienced you are, the more you are able to make good judgement.

Personally, when I employ value investing strategies, I don't only buy business with good prospects. A company might have a declining business but it might contain some assets which are understated in their balance sheet. So, when I miss a good business because of valuation, it is ok for me as a value investor. But do remember that I am not a pure value investor. I do buy growth stocks. I had been doing value investing for the past 1.5 years mainly due to my outlook of the market.

12:45 AM  
Blogger ghchua said...

Hi Guru,

I don't think I am aggressive to use CPF-SA to invest. As CPF-SA is being locked in for many years, the time horizon for my CPF-SA investment is very long, most possibly more than 20 years. Yes, they are paying you higher interest rate for CPF-SA account, but do remember that there is really limited use for the funds. I don't invest all my CPF-SA funds too, some of them had been kept with CPF Board as they also impose limit on how much CPF-SA funds could be invested in managed products like unit trusts.

I have held those UTs for quite sometime, but I had been adding onto them throughout the years. So, it is not really buy once and forget, but rather adding onto them consistently when I have funds available for investment.

12:45 AM  
Blogger Guru said...

Hi ghchua,

Thank you for your very detailed explanation, I appreciate it.


5:10 PM  
Blogger ghchua said...

Hi Guru,

You are most welcome. I believe the risk of investing will be reduced greatly if one adopts a long term view of their investments.

7:54 PM  
Blogger Harry said...

Hi, I came across your site and wasn’t able to get an email address to contact you. Would you please consider adding a link to my website on your page. Please email me back.



2:56 AM  
Blogger Unknown said...

Interesting article -- and congrats on making the move to become full-timer. May I republish Investment Strategy for 2012 on www.nextinsight.net? Thanks!

5:01 AM  
Blogger ghchua said...

Hi Unknown,

Sure. You can republish Investment Strategy for 2012 on www.nextinsight.net.

6:36 PM  
Blogger Unknown said...

hi ghchua, it's published now at www.nextinsight.net. Thanks and have a great time in 2012.

9:56 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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