Wednesday, January 01, 2014

Investment Strategy for 2014

2014 is expected to be a good year for the markets, at least according to the analysts. Corporate profits are expected to go up, and markets are cheering since the tapering had started slowly and not as bad as expected. Economics are humming along, which should be good for equities.

Personally, I think one should be prepared for volatility in the markets for the year ahead. Your portfolio must be able to withstand market correction and also take opportunities to re-invest back into the markets when valuation is attractive. Remember to protect your downside first and the upside will take care of itself. My strategy for investing in 2014 are:

1. Look for deep value stocks. As markets recover, one might be tempted to chase for high growth stocks since the stories will be rosy. Growth is also expected to be priced in for these stocks and one must be prepared to pay for high valuations to buy into their expected high growth. Personally, I have become more defensive when markets go higher. I tend to invest into more value stocks than growth when markets are high. This should be one of the must have strategy if you want to be defensive.

2. Look beyond the blue chips and mid cap space. One must be prepared to invest against the crowd when markets are high. Therefore, do spend sometime looking at stocks which had been ignored by the markets for quite sometime. Low volume and lack of news flow are typical characteristics of small cap value stocks. Also, be prepared to look beyond the usual blue chips, mid cap stocks in order to search for gems to invest in.

3. Keep a lookout for M&A deals. Similar to last year, some companies might decide to throw in the towel and delist from SGX or being acquired by bigger companies. Keep a lookout for these category of stocks as the return is quite decent if the company is being delisted at a fair valuation. A few of the s-chips had been delisted from SGX last year and this category of stocks might be another place for idea generation for delisting in 2014.

4. Do not be aggressive, but be prepared to re-invest your proceeds slowly in good ideas. A lot of times, we tend to be aggressive and invest all in one go when markets are going up. Though my strategy is to stay almost 100% invested at all times with minimal cash holdings, it doesn't mean that I have to invest all my spare cash in one go. I normally try to spread my investments slowly in a few stocks at any one time, rather than trying to invest all in one go for one stock. In this way, you can stay invested and also spread your time and stock concentration risk.

5. Build up my stock knowledge "database". What this means is to read widely and build up your individual stock knowledge. You might not be buying or adding onto the stock currently but it doesn't mean that you do not need to know anything about it. Stock ideas can come from your own stock "database" too and you need to also exchange ideas with fellow investors. Therefore, when there is no AGMs/EGMs etc going on, instead of staring at the stock price screen, one should spare sometime to do some catchup readings on companies.

6. Reflect on my portfolio, review strategies. Sometimes, your portfolio might not perform as what you have expected and it might be because of asset allocation mistakes, wrong company selection etc. Try to review and refresh your portfolio management strategies and reflect on your mistakes. Do read some books on portfolio management techniques and also see how it can be implemented on your current portfolio to make it better.

7. Do what I have been doing. I will still be subscribing for rights issues, taking up scrip dividends, attending meetings etc. These are the regulars that a full-time investor like me had been doing and I will continue with them in 2014.

That is all I have for this posting. I wish all of you more happy returns in 2014!



Blogger Unknown said...

Excellent advice!

If I may add as well: Keeping yourself healthy is ever so important especially when you are a full time investor. So let's allocate some time and effort to that aspect by exercising and eating well.

If possible, donating a part of investing returns help to make positive connection between money and positive change. Afterall, accumulated wealth is a tool, not an end in itself.

Wish you good health and wealth in 2014, ghchua!

2:36 AM  
Blogger ghchua said...

Hi Henry,

Yes, exercise is one of the points that I mentioned in my investment strategy post for 2013. I didn't want to repeat again for 2014 but yes, being in good health is very important.

Definitely and I agree with you on donation. In fact, I have been supporting a few charities throughout the years. Their web link can be found on the left side of this blog under the title - My Supported Charities. I will be looking at how to better support them in the future.

5:28 AM  
Anonymous Anonymous said...

how do u keep a lookout for m&a deals?

6:32 AM  
Blogger ghchua said...

Hi jiaxu,

Unfortunately, there is no one golden rule to look for M&A deals. Some can be a little bit obvious, others you have to guess based on experience.

There are basically two groups that you can take note of. One is delisting whereby majority shareholder might not want to list their business anymore. The business can be profitable but it is growing slowly and also maybe in a state of decline. The company might not access the capital markets for quite sometime for rights issue etc. Quite often, these companies might hold assets which had been discounted by its market price. You can exit at a decent premium from its last traded market price.

The second group is a growing company which becomes very attractive for the major shareholders to sell at a good price. Most possibly, there will be a bidding war for it as buyers are eager to get their hand at the business. You can exit at a good price if the deal is successful.

The others involves only selling part of the company. Like CSE selling their UK business, Transview selling its golf distribution business, Straits Trading selling its stake in WBL etc. This meant that you will not get an offer for your shares, but you can expect a good payout when they completed the sale as the company is suddenly flushed with cash.

Hope that the above clarifies.

7:15 PM  
Blogger Unknown said...

Great thoughts! Thank you.

One question though....could you share your insight on Noble Group. I find that its been languishing for years. Since you have this stock in your portfolio, I would like to hear your views for its future potential. Thanks again!


8:36 PM  
Blogger ghchua said...

Hi Samuel,

I had not been adding onto Noble Group for quite sometime. I took up a bit of scrip dividend last time round, and that is just about it.

The main bulk of my stake in Noble Group is really their bonus issues and stock spilt throughout the years. Of particular interest is their 4 for 1 stock spilt in 2004.

For the past 3 years or so, Noble Group had been a laggard in my portfolio. I guess the commodities cycle had been tough for them as a supply chain manager. Margins had been squeezed and their associates had not been doing well. They have diversified across other commodity sectors but the going is tough.

However, I still believe in the company which explains why I am still holding on. I guess they have the scale to do well and when the commodity upcycle comes along, they will stand to benefit again.

11:54 PM  
Blogger Unknown said...


How does warrants works
I am not sure to subscribe for recent Hai leck warrants
Please share your thoughts

Thanks Chin

6:11 AM  
Blogger ghchua said...

Hi Chin,

Warrants is like a call option. For company warrants, it gives the holder the right (but not an obligation) to subscribe for its shares at an exercise price before or on expiry date. However, for company warrants, if you don't wish to exercise them and convert to shares, you can sell them in the open market.

Basically, warrants have two main components - i.e. intrinsic value and time value. A warrant might have a exercise price that is higher than the current share price that the company is trading at, but since there is still time before expiry, the market will not price it at zero.

For Hai Leck, you have to see whether you are positive on the prospects of the company before deciding whether to subscribe for the warrants. The warrants had been priced to sell, at only 0.1cts with a 5 year exercise period at an exercise price of 33cts. Just looking at the 5 year time value alone is already worth more than 0.1cts. I will be subscribing for it.

9:49 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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