Sunday, June 15, 2014

After thoughts of invest x congress

I am a slow thinker. I need time to connect dots. I felt very compelled to write again. Invest X congress has provide the spark for me to reconnect the thoughts again.

I replied in a comment, that the level of enlightenment and excitement is no lower than the time I lay my hands in "the intelligent investor", a watershed moment in investing.

I have a few nagging questions that have been answered, and I wish to crystallize my thoughts before they are gone again.

Q1) how much to keep for war chest?
Q2) why it so darn hard for me to keep my hands off the market when I am sitting on cash?
Q3) what is my plan for multiple market cycles?

I have high expenses, I cannot just say cut then cut, I need to convince my wife and my in-laws that overseas trips are a waste of money. I am more or less resigned to the fact that I will work till I die.

I have a portfolio of 50k, including cash idling now. What to do with it?

To answer q2) the end goal is really important. I want 400k by 60, so that my passive income can be 2k per month. I know many of u have 400k now, and is already laughing. Is ok. I just want to lead my life my way. I know I can keep the 50K port active. It is a minimum port, if anytime I exited a counter and it fall below that level, and I find another value proposition, I can just go for it again, there is no need to wait for a correction. There is no need to worry about inflation, as the core of returns of 5-6% through dividends should allow compounding of reinvestment. When I see the end goal clearly, there is less urge to buy that counter that will be gone tomorrow. The decision of what and when to buy, how much to buy become clear. It is so much easier to keep my hand off or on the market now, with the plan clear and sound in my head. The plan may works or not works, but without one, u don't even know it doesn't work

The most important criteria is dividends. Other things work too. But my core 50k should be all income generating, preferably between 4-6%. The next important criteria is it must withstand stress tests, balance sheet strength is a must! Ability to bounce back is a must too.

Will re look my counters again. I still believe in diversification. My circle of competence must be spent on preventing blown ups that have no chance of recovery.

Q1) how much to keep as warchest? As much as possible. Assume 6% return for 50k compounding, I just need to feed 3k plus for the next few years. These are the amount I can actively buy whenever I find value proposition that fit my criteria. The rest of the money will be tuck away as opportunity fund, and to strengthen emergency fund. When opp fund almost equal to port size, can consider increasing port size. Otherwise, the port size increase will come strictly from dividends. That would set my mind at peace with any emergency or market correction.

When market correct 5-15%, opp fund can be dipped into, but by no more than 30%.

When market correct 15% to 25% another 40% can be used.

If crash of beyond 30%, the reminder can be used.

How about super bear of more than 50%? I think it will be blood all over the street, CPF OA to pick blue chips should be fine.

Does aggressive growth counters has a place in my port?? Well, if opp fund is almost as big as port, I think some money for adventure is fine. But like what AK says, it is a small part.

Counters that give good dividends but not "AA" rated by my own benchmark should be constantly monitored and should not cover more than 10% of port.

Cigar puff counters, with viability of only 2-3 years should be traded off with good profits unless visibility improve.

Area of improvement:
1) bigger radar of companies
2) qualitative comparison of companies

I néed to have my circle of competence up and running soon.

10 comments:

  1. Have you do a stress test on your current investment portfolio e.g. one counter wipe out and cannot recover?

    What will be investment return of the remaining stocks and new capital injection needed to reach your final investing goals?

    ReplyDelete
  2. Hi CW,

    The current port is not ideal. Some counters form almost 20%. Recently, just rebalanced such that none will be that big following the sell out of YZJ.

    I intend to reduce the figure to less than 10% over the next few years. Slowly, majority of it should form just 5% as the port grow.

    I also sold out APPT to wait for a better opp for reentry, if I do. I am looking at several options, and even if I do move in, it will be half of what it used to be.

    All these moves are done before I attend the seminar, with the decision to hold more cash. I will share more port again when it stablized.

    If any of my counter died on me now, it will be quite painful, but the sum involved is small, will recover.

    Moving on, I will be mindful of the risks

    ReplyDelete
  3. H Silly Investor

    Quality over Quantity . hehe.. my thoughts are more or less the same with yours . my target of $100 dividends per mth this year ($1200 this year ) doubt will be met .

    ReplyDelete
  4. STI,

    You got a 7 years head start, no worries. U will hit what u want soon.

    U are only 28 right?

    Hmm.. What am I doing at 28? Ar.. Nursing my wound from the CAO fiasco, totally out of market

    ReplyDelete
  5. Hi Mike,

    Q1) how much to keep for war chest?

    Very hard to say. 50% cash is what I would like to have but if conditions are ideal to be invested. Then, cash portion should reduce significantly. Right now, I am 60 to 70% invested, I estimate.

    Q2) why it so darn hard for me to keep my hands off the market when I am sitting on cash?

    Remember what Charlie Munger said. It takes character to sit on cash and do nothing. Must have character (whatever that means). I don't mind sitting on your cash for you. ;p

    Jokes aside, consider locking up money in Fixed Deposit. You will think twice about breaking a FD. Also, although it is near money, it is not as near as cash in your savings or trading account. Suggestion to be considered if you really have itchy fingers. ;)

    Q3) what is my plan for multiple market cycles?

    I don't think this is necessarily a difficult question to answer. If we see something is selling at a price that gives good value for money, buy some. If it is overvalued, consider selling some.

    The difficult bit is in answering questions which the answer above will generate. ;p

    ReplyDelete
  6. Hi AK,

    Thanks for answering the questions.

    I am more comfortable with my investment plan now. Of course, the nitty gritty of stock picking is always learning in process.

    But I also feel I lack the bigger picture or framework to work.

    I think I have it now. Thanks to the seminar for providing the spark.

    The counters on my port, now looking at it. I see it differently.

    The money at my buttocks, I see it differently too.

    I dun think I need FD to keep my itchy hands away now.

    As you say, have a plan. I had a stock selection criteria, but not a plan, its not doing several guerrilla battles but not knowing what the war is about. It is much better now

    ReplyDelete
  7. Hi Mike,

    I am so happy that you have found your centre. Important discovery for any investor and it could be different for every investor. In fact, it probably is. :)

    Despite what some people might think, there isn't a one size fits all approach. A pyramid for me, an inverted pyramid for another and an hourglass for the lady down the aisle, perhaps. Sorry, I couldn't resist. ;p

    ReplyDelete
  8. Haha AK,

    After the bra incident, u still not scare??

    Actually my plan is rather similar to yours in terms of cash of 50% but more vested when time is good.

    I think my biggest problem is my radar is too small. My circle of competence too small.

    Suddenly has another blog post idea!! Haha

    ReplyDelete
  9. Hi Mike,

    Well, I was possibly a little bra(sh). Certainly, it was nothing to bra(g) about. ;p

    It is always good to have a blue-print that we can constantly refer to, just to remind ourselves of what we should do especially when emotions run high. :)

    Actually, my radar is very small too. My circle of competence is small as well. I do a bit of wandering into areas unknown too and sometimes I find myself in paradise and sometimes I find myself in a swamp. -.-"

    If AK the frog had stayed in his well, he would have done quite well too, actually. No need to hop out of his well to brave the unknown. ;p

    ReplyDelete
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    ReplyDelete