Sunday, 13 July 2014
Which Investment School of Thoughts
I attended a course today: ‘The Value Investing Mastery Course’ conducted by BigFatPurse. I believe BigFatPurse need no more introduction, as it is a well known blog with a wealth of information among the local financial blogger scene.
Coincidentally, I read Cheerful Egg latest blog post on way back home after the course, on the pros and cons of different investment strategies out there and why he thinks passive investment through an ETF is the best deal for retail investors like you and me.
Let me distill my doubts a little and put them into words. I have been really thinking hard about this issue on which investment strategy to use. Should I buy into earnings, company shares with best prospect and chances of earnings growth? Should I adopt a conservative approach by investing into assets so cheaply that I run minimal risk of losing money and let the future earnings take care of itself? Should I focus on cash flow and concentrate my funds on dividend shares with consistent and good yield, and high free cash flow yield with low payout ratio?
I read a lot of investment books and attend paid investing course or free investment talks very often. These events, with different concepts, tend to convince me in the merits of their method, and my belief will gravitate towards that school of thought after each talk. This had partially resulted in my portfolio having a mixture of assets value, earnings, dividend, or even turnaround companies.
And these shares had done quite well despite that they were bought based on different methodologies. So, it kind of puts me in a dilemma on which investing strategy to follow through.
Yes Conservative Net Asset Value strategy is logical and conceptually robust. It limits the downside risks and puts investor in a comfortable position to wait for the upswing. In Chinese it is 以逸待劳，先立于不败之地。 However there are still lingering doubts after the course: don’t these companies need catalyst to ‘jerk’ up the price? How long should one reasonably expect for the share to rise to its NAV? Being vested in 25 or 40 stocks makes it difficult to monitor your portfolio isn’t it? Even hard assets like property experience boom and bust cycle so how should one take that into account?
Buying into earnings growth. If a company had consistent earnings growth, healthy balance sheet, with management articulating clear growth strategy and expanding capacity in preparation for the industry boom, and I had diligently research and concluded its worth buying. Should I invest, or let it go in favour of a share that meets all the CNAV criteria? I bought into Riverstone using this approach and it had performed well.
Dividend. Should I just focus on the cash flowing into my pocket? But dividend can stop one day. And dividends come from company’s cash and paying out dividend spells a decrease in company’s assets. Am I substituting future earnings growth for present cash flow?
Hmm. How do I reconcile the differences ah. Or when my capital is large enough then I can build a portfolio with meaningful amount of stocks under different strategy? Don’t know that will take how long.
The thing is. Even if I managed to settle my mind with one strategy, I wouldn’t know it works, until it works. And what if it doesn’t work? Should I change strategy? Should I remain faithful and stick with it? Should I ignore?
Guess that’s the uncertainty that will always be present. I have to live with this uncertainty, and possibly embrace it.
So. Which strategy should I go with? Hmm.
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