This part of investment journey ahead is likely to be my weakest link, monitoring and documentation. In my work, I am quite weak in documentation and monitoring of the effectiveness of various programs or ideas I had, the only exception perhaps is my pupils' exam competence, although I do not do detailed documentations, there is enough "tests" and assessments that gave me insights about their capability.
In 2020, I went from the peak of 60% cash to 15% cash, and activated my CPF for investing several times. I have kind of done with building up my portfolio. What I need now, is monitoring, and decide when to hold, sell, and perhaps buy more.
I have put down the various criterias I used to screen a stock. I now assigned a nummerical score to it, but I will still use it as a guideline instead of saying when the score falls by 3, I will sell. I will defintely look at the total score at least twice a year from now on. The criteria used are
1) FCF yield, above 10% given highest score (-1 to 3)
2) ROE, above 20% given highest score (-1 to 3)
3) ROIC, above 15% given highest score (-1 to 3)
4) Dividend payout rate, and yield, with 30% payout yielding more than 5% guven the highest score (0 to 2)
The above 3 criteria are what I considered as how well a company allocate it capital.
5) Quick ratio, with above 2 given highest score (-1 to 2)
6) Debt to equity ratio, with below 0.3 given highest score. (-1 to 2)
7) Stable/ deterioriating/ growing/ or volatite Gross margin and Net Margin (-1 to 1)
The above 3 are measure of balance sheet strength and potential red flag of loss of competitiveness
Beyond point 8 are qualatative assessments, it is not rocket science but required judement or opinon
8) Overall track records
9) Adressable market expanding
10) Track record in new product execution or fruitful acquisition
*11) Industry has reached/ near bottome, with consolidation, bankruptcy, utilisation rate and product rate all at muti-years low or historical low
12) Earning visbility over the next 1 to 2 years.
*13) Signs of turnarounds
For point 11, the question asked before even assigning a score is, is this industry at risk of obsoletion? Oil and Gas come to mind, hence I have sold off all my SembMarine. Keppel has been successful in winning orders in renewal energy, while Sembmarine aims to do the same, there is no order win yet.
As I am tabulating the scores, I ask myself what does a high score means? It means the weightage should be managed for those of low score. Selling if the score get lower and lower (HIgh valuation will depressed several criterias for asset allocation criteria)
But it is really the trend of the score that matters.
I am not done with it, and will continue to refine it.
But thus far, the companies with the highest score are:
1) ST engineering
2) YZJ and CSPC
Lowest score are
1) Sembcorp Industries
I will also want to monitor the performance of the companies of the highest and lowest scorers to see if this evaluation makes any sense at the end of 2021