My stocks portfolio (as at 30 Nov 2009) - Focusing on the long term underlying businesses of my stocks

This month of November has been an interesting month of seeing the advancement of STI index with the surge of prices of mainly blue chip stocks while penny stocks and S-chips remained muted with some pull backs. As such, most of my counters (some blue chips) were up. There was also news that Singapore has declared itself out of recession. However, at the end of November came the news of the Dubai's debt crisis which jolted the global stock markets. Singapore stocks market was not spared as the STI closed lower this Monday (30 November). There were some commentaries stating that the Dubai's debt crisis will be under control and will not have far reaching effects.

On a personal level, my portfolio saw some adjustments to one of my investments (MacarthurCook Industrial REIT). MacarthurCook Industrial REIT (MI-REIT) went through an EGM to approve some resolutions on a proposed recapitalisation exercise. It received heated disapproval from one of it's substantial unitholder Cambridge Industrial REIT regarding it's recapitalisation exercise stating that the exercise will destroy unitholders' value significantly in the REIT. I took the chance to partially divest from this investment to avoid being caught in the significant dilution of my investment in the REIT. I have shared my thoughts on the recapitalisation exercise of MI-REIT in an earlier post (http://jeremyowinvestingexperience.blogspot.com/search/label/MacarthurCook%20Industrial%20REIT%20%28MI-REIT%29). Readers can follow the post for more details on this recapitalisation exercise. I did not fully divest from this investment as I still see potential for further positive developments with the incoming of new strategic sponsors and investors into the REIT despite the massive destruction of unitholder value.

Of course, I will need to continue monitoring the future developments of this investment. As such, I may rebuild gradually my investment in MI-REIT if the future developments in this REIT are good. I am not going to marry this investment, but is still interested to look out for it's future developments and should things turn out wrong, I will not hesitate to divest my remaining investment in this REIT for other better alternative investments. Thus, I am all out to invest focusing on the long term potential of the underlying businesses of all my investments and not be short-sighted, focusing only on short-term hicupps along the way. My investment in MI-REIT is a good lesson of not wanting to be a stock owner but a business part-owner still looking out for it's future developments and not run away totally just because of an immediate dilution of unitholder value. My investment motto goes ,"Constant monitoring focusing on long term economics of underlying businesses of stocks."

My stock portfolio saw an increase to the realised gains (increase by $2202.40) over this month due to gains on divestment of MI-REIT. My total transaction costs went up slightly because of the trading costs on my partial divestment of MI-REIT. My portfolio cost is reduced to $85,630.10 due to the partial divestment as well. All in, my total gain (%) over my portfolio cost is 52.85% which is a slight improvement from last month (total gain of 47.53%). I will receive dividends from two of my investments (MI-REIT and Tat Hong Holdings) in December, of which I will include in the dividends amount received under my December portfolio update.

My portfolio cost saw a decrease due to my partial divestment of MI-REIT. As such, the market value of my portfolio also saw a corresponding decrease.

My portfolio continues to see an improvement reaching a total gain of 52.85% over portfolio cost. This is due to unrealised gains over most of my counters influenced by improving sentiments to the better economic outlook as Singapore declared itself out of recession and the continuing gradual global economic recovery.

My realised gains has increased slightly due to the partial divestment of MI-REIT this month. My total transaction cost also increased slightly due to associated trading cost for this partial divestment. Overall, my total net gains increased slightly from $44,623.49 at 30 October to $45,261.80 at 30 November.

Moving forward, I will continue to monitor the companies under my portfolio. I will be sharing more of my own background research into the companies under my portfolio. Eventually, I hope to provide extensive sharing on the individual companies under my portfolio.

Once again, I wish all readers a happy and fruitful investing journey! :-)

My stocks portfolio (as at 30 Oct 2009) - Does buy-and-hold strategy works?

Does buy-and-hold strategy works?

Warren Buffett has an investment quote, "We don’t get paid for activity, just for being right. As to how long we’ll wait, we’ll wait indefinitely." Different investors have different investment philosophy. Not all investment philosophies are alike. Some thrive on constant trading while others like me subscribe to a buy-and-hold strategy. I respect different investment philosophies as there are successful practitioners
living out different individual investment philosophies making good returns on their investments.

As a focused value investor, I look out for sound fundamentals of companies to invest in. I also look at valuation of the company stock, to make my investment as far as possible at undervalued prices of a company's stock. I also adopt a buy-and-hold strategy to make the most out of my investment from the continued good growth and economics of a business. As long as a business is still worth investing in, I will remain invested in it to allow the long term economics of the business to increase the value of my investment over time.

Of course, a buy-and-hold investing approach does not mean marrying a stock though it seem to suggest from the persistence to hold onto a stock even through market fluctuations. The correct view to a buy-and-hold approach is that an investor remains invested in a business that is still performing in terms of business economics. Only when the business has deteroriated permanently in business fundamentals or the stock price of the business has been grossly overvalued so that the business's total projected cashflows over it's lifespan cannot justify for the high stock price being traded will an investor divest out of the business. A business will have it's business cycle (growth phase, maturation phase and declining phase). No business can remain forever. So, a buy-and-hold strategy looks at remaining invested in a business that is perceived to be able to generate a consistent successful excellent business economics over it's entire lifespan (the longer the business can continually perform generating good returns for it's shareholders, the better).

Thus, buy-and-hold does not mean being a stubborn mule bitting and holding onto a carrot and will not let go no matter what. If the carrot is spoilt or lost it's taste, it is prudent to part ways with it immediately and look for better carrots to bite. However, when the mule has found an excellent carrot, it will bite and chew and continue chewing slowly indulging in it's excellent taste for while the carrot can last until the last chew.

My portfolio results stem from a buy-and-hold approach

I have not done any trades during the month of October. Since there is no acceptable investment opportunity and ideas this month, I remain inactive. Adopting Buffett's quote above, I will wait patiently for investment opportunity. If nothing great appears on my radar screen, inactivity strikes one as intelligent. Anyway, I don't get paid for activity unless it is necessary to carry out a good investment idea. Only the brokerage firm gets paid for my activity.

My portfolio went through a mini-roller-coaster ride for this month. However, things have stabilised at least for the moment. As to the short-term forecast of the stock market movement ahead, I have no desire and interest to know. As long as my invested companies continue to do well in business economics, I remain invested in them. Market fluctuations are of no interest to me. Stock price fluctuations only allow me to decide when an investment opportunity has arrived or not. Stock price movements being characterised as "Mr Market" is my friend. I will entertain "Mr Market" and make friend with him only when he offers me an attractive price for an investment opportunity. Otherwise, I will only smile at him at best and say "call me again next time" when you have a better deal for me.

I did not receive any dividends this month from all my stocks holdings and since I did not make any trades, the realised gains remain stagnant at $8826.18. My total transaction costs remain the same as well (thankfully without any trades made). My portfolio has seen improvement in the unrealised gains allowing my net total gain (%) to rise to 47.53% on my portfolio cost (compared to last month's net total gain of 40.15%). So, does buy-and-hold approach works (considering I had bought and held onto most of the stocks in my portfolio for around a year already)? I think it is still too early to tell. I am still investing and researching based on my current portfolio on the possible merits of such a buy-and-hold strategy. I will continue to learn how to live out a focused value investing philosophy and see if it really works in practice. Let the research continue on........

Additional research information on my portfolio for this year

I only started to document my portfolio results from January this year. However, it provided somewhat enough information into the movement of the stocks market from the bear period a year ago through the sharp rally from early March until now. I view the stocks market ahead with anticipation. It is really fascinating to watch the everchanging dynamics of the market based on the combined psychology of all market players since I started investing. It is no wonder so much work and research has been done in the area of behavioural finance to document the thinking and psychology of market players. The human mind is really fascinating to examine when making investment decisions be it rational or irrational ones.

I shall present the following charts that document my progress in investment over this year.

The market value of my portfolio was below my cost of portfolio from January to April. This was due to the full sharp decline of the bear market felt from October last year to March this year. By holding onto my stocks and averaging down, I managed to have a low average price for most of my stocks (though my low average price for most of my stocks is still nothing compared to an investor who has entered during March this year). Well, those that can time the market bottom efficiently has already got their deserved rewards for their good judgment (based on hindsight) having been realised by the sharp rally following March. As for me, I may not have invested a substantially large part of my funds during March, but I certainly have caught a fair bit of investments from October last year to March this year adopting a value investing philosophy. The market value of my portfolio has exceeded my cost of portfolio from April until now thanks to the sharp rally and a buy-and-hold approach. Moving ahead, I do not know what will happen to the stock market. But, I will certainly still buy-and-hold cautiously, always looking out further for good investment opportunities along the way.

My portfolio was still making a net total loss from January to April. After April, since the market value of my portfolio has risen above my cost of portfolio, my portfolio has seen net total gains. I will continue to monitor my investments and try my best to live out a focused value investing philosophy. I am more interested in longer term returns than short term returns, as short-term performance may not mean anything at all. A good investor is one that can invest at high compounded annual rate of returns over decades.

My unrealised gains has increased sharply since April due to the sharp rally until now. My realised gains from a limited amount of trading (full divestment of Jaya Holdings and partial divestment of CapitaCommercial Trust) and dividends received has also increased from January until now. I am looking at further growing my realised gains not from trading of stocks but from increasing my cost of portfolio by regular reinvestment so as to increase the amount of dividends I will collect from an enlarged cost of portfolio. By reinvesting through the future years, I hope to enlarge my cost of portfolio and allow compounding to continue it's work. Sir Albert Einstein once quoted that one greatest discovery to humanity is the effect of compounding. When compounding works in finance and investment, it is truly amazing how a small capital base given sufficient time by compounding can magnify it's value by many folds.

Discussion points:- Is buy-and-hold a dead end strategy? I may not think so. As long as it is used properly, buy-and-hold approach may even be better than an active trading strategy considering the amount of transaction costs that are bore by an active trading strategy that eats into returns.

Compounding is an amazing mathematical effect. An investor that regularly reinvest will allow compounding to exert it's effect on his investment to increase his original investment many folds over a period of time. The higher the compounded annual rate of returns, the higher will an investment grow in value over time. Of course, getting consistent high compounded annual rate of returns is by no means easy. It requires continuous effort by the investor to invest prudently and wisely to acheive such high compounded annual rate of returns over a long period.

I shall present more discussions on the companies in my portfolio in future posts. I wish all readers the best in your investment journey.

My stocks portfolio (as at 30 Sep 2009) - Result of living out a focused value investment philosophy.

After I had divested out of Jaya Holdings (see earlier post) around August this year, I bought into shares of SembCorp with the small profit on divestment. I also increased my other holdings with the small profits on divestment. My reasons for divesting Jaya Holdings are mentioned in my earlier post. I bought into shares of SembCorp as I find that it is a large cap blue chip stocks dealing with multi-industry businesses. It owns the subsidary company SembMarine which is the world's second largest oil rig builder. I decided that investing in an already established large conglomerate like SembCorp is afterall better than investing in a smaller business like Jaya Holdings. Given a large cap and a small cap businesses are both comparable in future long term prospects, it is the larger one having far longer consistent track record that may provide more stability in long term investment. Afterall, the larger business has already established itself with a longer proven track record providing more credibility to continue its operations based on good branding and business characteristics.

My stocks portfolio

Learning to live out a focused value investment philosophy

As I have mentioned in my earlier posts, I started entering the stocks market during late June 2008. My two earliest stocks that were bought included CapitaCommercial Trust and Parkway Holdings. As I was still reading up books and researching on stocks investment during that period, I did not firm up an investment philosophy unique to my personality. My earlier buying trades into CapitaCommercial Trust and Parkway Holdings were based on gut feelings with some emotions involved. It was later that I aligned my learning from these practical experiences with my investment reading and research that I firmed up my own investment philosophy, which is that of a focused value investing philosophy. An investment philosophy is necessary for an investor. It is his own guiding principles on making every investing decisions (e.g. what stocks to buy, when to buy and when to sell). An investor without his own living investment philosophy will be confused and clouded by emotions whenever executing his investing decisions. This is because his thinking keeps changing based on emotions affecting his every decisions. He always questions what he is doing and is unsure if a decision is rightly made since there is no inherent investment philosophy to draw upon as a guide.

After I have firmed up my focused value investing philosophy, every decision and thought becomes clear always supported by the investment philosophy. Making a decision is no longer difficult since it is backed by the investment philosophy. Owning only a few stocks in concentrated positions; buying stocks only at a margin of safety below its intrinsic value; selling stocks only when it is grossly overvalued or underlying business fundamentals have deteroriated permanently or there is a better alternative stocks worth investing; always look at buying stocks as part-ownership in a business, so it is vital to constantly analyse and monitor underlying business of a stocks. These are the guiding principles of my investment philosophy and once an investor has lived out his own investment philosophy, making an investment decision is as easy as breathing since he carries out every decisions naturally. It becomes his own natural investment style.

Therefore, my current portfolio is the result of slightly more than one year of practical learning to live out my investment philosophy, that of a focused value investment philosophy. The more I practise my investment philosophy in thinking and making decisions, the more it becomes a natural part of me. I am still learning and will be always learning to live out a focused value investment philosophy.

Weightage of individual stocks in my portfolio

There is a conventional portfolio management style which says an investor must seek to rebalance the weightage of the stocks in his portfolio. As such, he should sell some shares that have appreciated too much in value and buy other shares so as to keep the weightage of individual stocks in his portfolio constant. E.g. an investor's portfolio is made up of 30% stocks A, 30% stocks B and 40% stocks C. If the price of stocks A has run up such that the portfolio is made up of now 50% stocks A, 20% stocks B and 30% stocks C, by conventional portfolio rebalancing management, the investor must sell some shares of stocks A and buy more shares of stocks B and C to rebalance the % of each stocks back to the ratio 30%: 30%: 40%. This is to reduce the risk of any particular stocks dominating the portfolio and rebalances the weightage of individual stocks according to a pre-determined ideal fixed ratio.

However, based on focused value investing philosophy, the investor does not care about % weightage of individual stocks in his portfolio. He assigns more funds constantly into the stocks he thinks is more promising than others and/or is more attractively priced to acquire more of its shares. As such, there is no fixed % weightage for individual stocks in his portfolio and it keeps changing according to the prospects of individual stocks. As such, I do not believe in rebalancing as an approach to portfolio management. Ride the winners and weed out the losers constantly.

Transaction costs drag down investment returns

The total transaction costs of $1425.29 incurred for all my trades translates to a decrease in 1.52% from my total returns resulting in net 40.5% returns since I started out in late June 2008. I was amazed by such a hefty sum in transaction costs incurred considering that I do not practise active trading of stocks. I really wonder how an active trader trading frequently in many small positions can achieve good returns after deducting the hefty transaction costs even through low cost online brokerage trading?

As such, I am now more conscious of transaction costs. Afterall, a focused value investor waits for the perfect pitch to buy and sell shares only when the best opportunity strikes. Inactivity really matters to prevent having a high turnover in portfolio magnifying transaction costs. Execute trades only when necessary. Otherwise it is better to do nothing.

Further discussions will be provided on my portfolio in subsequent posts.

Discussion points:- It is vital to have a unique investment philosophy aligned to one's personality. When one lives out his investment philosophy, he is no longer basing his every investment decisions on changing emotions. Every investor is unique and may not share similar investment philosophy.

Rebalancing is not an effective way to manage portfolio. Instead, have the courage to invest heavily in the most promising stocks in one's portfolio. Ride the winners and weed out the losers constantly in one's portfolio.

Avoid a high turnover in trading one's portfolio. Transaction costs is a real drag to investment returns.