The book that started me off on this journey…

2012-12-19_10-34-49_512My journey into the world of personal finance and investing started around October 2007 when I was in National Service (NS). I was 19 years old then. I was just promoted to be a Third Sergeant and wanted to learn how to budget my extra allowance prudently to prevent overspending. I made a trip to Popular bookstore to purchase some books on budgeting.

As I strolled into Popular bookstore, to my left stood a section called “Popular Bestsellers”. Perched on it was a book that caught my eyes instantly. The book was entitled “Rich Dad, Poor Dad” and it was by Robert Kiyosaki. The title was interesting so I picked it up to read the blurb on the back page and it seemed interesting. The blurb did not talk much about how the book could help me to budget my money but I bought the book anyway.

Reading the book was a life-changing experience for me. I never saw money the same way again. The concepts revealed in the book were just mind-blowing. One example is that the house we are living in is actually not an asset but a liability. We have been all trained to think otherwise since young. There were many instances of “Aha” moments as I read the book. Anyone who is interested in personal finance and investing should read this book. I have not looked back since…

FFN’s Stock Watchlist for 2012

The clock has struck midnight! Happy 2012! May this year brings lots of happiness, blessings and wealth to you!

For this year, I’m watching a few stocks keenly and waiting for Mr Market to get maniac depressant to bring the price of these stocks down further. Those stocks are:

  • ARA
  • SIAEC
  • Raffles Medical
  • Cerebos
  • Super Group
  • Goodpack
  • OKP

These stocks have strong fundamentals, good free cash flow, etc and quantitatively, they are sound. I will still be looking into them qualitatively to make sure everything is correct.

Lessons learnt from Aug – Oct 2011

The period from August 2011 to October 2011 was an eventful one for investors worldwide. US credit rating got downgraded, Europe was reeling into a recession (and still might be), talks of hard landing in China, among others, covered the financial pages of newspapers everywhere. The VIX index (measurement of volatility in the S&P 500 index), aka the fear gauge, peaked at around 47 during this period.

This same period was when I learnt a lot as an investor. I have not seen a huge plunge in global markets ever since I started investing in June 2009. STI went into bear market region after dropping 20% from the peak. It seemed like the financial crisis of 2007/2008 all over again.

In June 2011, I sold off some overvalued stocks such as Super. I also sold off some silver holdings. I was lucky to sell them off prior to the market correction. I also reduced my percentage holdings of some companies to lock in profits, even though the stocks were still undervalued. On hindsight, I should not have pared down on these holdings as the stocks are still undervalued. I wasn’t disciplined enough to stick to my plans and hurt my returns as a result. I should have just held on to these stocks to collect dividends while waiting for the crisis to end. If the stock price really drops (10% – 15% below my average price), I can average down excitedly if the company is fundamentally still intact. From this episode, I learnt not to time the market. The market and economy are so dynamic that no one can predict them with accuracy,  not even the top economists.

I managed to average down on my SSE 50 ETF which was down 23% at one point. I’m satisfied to have averaged down this ETF as I have a firm believe in China. I couldn’t average down on other stocks as the price didn’t come down as much, even though I wish they have. I was hoping Kingsmen will come down to around $0.50 again but it didn’t happen, sadly.

I was also looking to buy stocks such as ARA at around $0.80 but the price never came down that. I told myself to be patient as that’s a valuable trait of a value investor. It’s no point buying an overvalued asset. I will just wait for the another major correction/crisis or if this current Europe crisis gets worst, I will look into buying some stocks again. On average, a crisis usually happens once every 5 years. Meanwhile, I will just save up and sock up on cash. The patient one with cash can make a huge killing when the right time comes.

In summary, I have learnt not to time the market as it’s futile and to hold on to my holdings if they are still undervalued. I can average down with the cash I have and collect dividends meanwhile. My investing style is still evolving as I’m still learning from what Mr Market presents everyday. Experience is the best teacher as there’s only so much you can learn from reading books.

My current market position

The market has been volatile for since 1st August 2011 mainly due to the economic problems in Europe and US. STI has hit the 52-week low on Monday, 26th September after closing at 2654 points. The problems in Europe would take time to solve and the volatility may continue for some time.

It’s the first time since I started investing in June 2009 that I’m seeing so much fear and uncertainty in the market. What is my position currently? I have sold off some overvalued stocks like Super (sold in June) and sold off silver (in August) and cut loss on Hock Lian Seng (in Sept). I have also reduced my positions in First REIT and Starhill Global REIT. I’m holding onto certain positions like Kingsmen, Vicom and STI ETF as I believe they are still undervalued. The P/E ratio of the STI market is around 8 and I’ll holding on to it even though STI is on a downtrend.

I don’t want to liquidate all my positions and buy-back later with the use of technical analysis. There are two reasons for this.

Firstly, I do not want to time the market. One cannot predict accurately the macroeconomic issues and the effect it would have on the stock market as there are too many complex variables involved. The Asian markets have dropped more than the DOW even though the liquidity problem is not in Asia.  The debt problem will take time solve but I’m more comfortable holding onto my positions as the dividends I receive in the meantime will cushion my paper losses. After the problem is over, the stocks will surely recover as they are fundamentally strong companies. I’m “loading up on my bullets” (saving up cash) to buy my companies at a cheaper price should prices plunge. I’ll average down if I have losses of 15% or more and will buy in batches instead of all at one go.

Secondly, even though the overall market may fall, some stocks will not fall as much or may even rise (it’s rare). These stocks are usually the defensive counters. So, it’s futile to sell and buy back later as I may be hurting my returns.

As an investor, it is somewhat important to keep up with the economic news and know where the world is heading towards. However, you should not let any negative news affect your investment decisions and make you emotional. Keep out the noise and focus on business fundamentals.  By focusing on the fundamentals of the company you are holding on to and by knowing the intrinsic value of the business, you will do much better by not selling off your stocks prematurely and hurting your returns. Keep a long-term view of your stocks of more than five years (as businesses take time to grow) and remember that “what goes down, must come up” (provided the companies are fundamentally strong).  In the long run, earnings drive the value of a company and reversion to the mean will occur. The fear that is gripping the markets now will turn to confidence after some time and markets will rise again. Also, always keep some cash and don’t be fully invested, ever. Save up a certain percentage of your salary every month. This kitty will come in handy when valuations drop after a temporary negative news of the economy or your company.

My philosophy of selling

Selling is more important than buying. Only after you have sold a business, you have locked in your profits. Every investor must have plans when to sell off his business at the very moment he’s purchasing it.

My investing philosophy is always evolving as I receive new insights from books and the Internet. Previously, I sold my holdings whenever the intrinsic value was reached. That was what I did for Raffles Medical (back in 2009) and for Thomson Medical (in Aug 2010 when I sold off half my stake). On hindsight, even though the price rose a lot, I feel that I should have kept the stocks as the fundamentals were still intact.

So, currently, when do I sell a business after buying it?

If stock has risen much more the intrinsic value calculated, I will still keep it if the fundamentals are still solid and intact. I will only sell such a stock if the fundamentals turn for the worst, management is screwing things up or if the market is getting very overheated and a bubble is forming. I will sell it off as there is no value left in the business according to my intrinsic value calculation. I can use the funds to buy other undervalued companies during a crisis. I can even buy the same company if the price falls much more than the intrinsic value with a margin of safety.

If a particular stock has not yet reached the intrinsic value, I will keep it even if there’s going to be a recession or market bubble. I can buy more of the business at a cheaper price when the prices fall for the short-term out of fear. I will never sell such a business to “buy it back at a lower price” as one cannot time the market accurately. Not even the best of the best economists can do so.

When I buy a business, my aim is to keep it for the long-term (5-10 years or more), provided the business fundamentals are intact so that the compounding effect can take place. Einstein has once said that compound interest is the eighth wonder of the world and I’m a firm believer in it.

Shifting of Portfolio

As I have said in a previous post, I have changed around my portfolio a bit to reflect the current market conditions. I liquidated my holdings in PGJ, SPY and C and withdrew my US dollars from my US broker a few days back. Since I have sold off PGJ (a China ETF), I wanted a new position to take advantage of the China boom. Thus, I purchased “United SSE 50 China ETF” listed in SGX and in Singapore dollars (felt more comfortable with local currency).

I have also liquidated half of my positions in Thomson Medical Centre after it went way above my intrinsic value calculation after Standard Chartered released a buy call with TP at $1.10 on 16th September. I was reluctant to sell off TMC at first as it’s such a gem. However, I sold off after I told myself that discipline is key in this business. I sell off when the intrinsic value is reached (no more value in the business) or when there’s a major fundamental change for the worst in the company.  I managed to take out my capital less $600 after selling half of my positions. Thus, it’s kind of risk-free now with only $600 in the market compared with my initial outlay. I’m keeping the rest as I estimated a higher intrinsic value in FY2010 (going to be released soon in Oct I think).

Current Holdings as of 18th Aug

As of today, I have the following in my portfolio:

Singapore

  • Thomson Medical Centre
  • Kingsmen Creatives
  • Super Group
  • First REIT
  • Starhill Global REIT
  • Mapletree Logistics Trust
  • STI ETF

US

  • Citigroup (ticker: C)
  • SPDR S&P 500 ETF (ticker: SPY)
  • PowerShares Golden Dragon Halter USX China Portfolio ETF (ticker: PGJ)

My holding in Citigroup is purely speculative. It’s not a value investment at all.

I have a China ETF as I believe, like most, that the next huge growth is going to be in China. By buying the China ETF, I can invest in many China companies at one go without much risks involved.

I own SPY which mimics the S&P500 index as US is still the “big brother” of this world. Also, the industry composition of S&P500 is mostly made up of energy, healthcare and consumer staples, making up almost 50% of the total composition. These industries are seen as defensive.