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. 

11 comments:

  1. CSCCC,

    "This had partially resulted in my portfolio having a mixture of assets value, earnings, dividend, or even turnaround companies."


    I recall one famous multi-bagger fund manager wrote about:

    Slow growers
    Stalwarts
    Fast growers
    Cyclicals
    Turnarounds
    Asset plays

    Some may say your portfolio may be missing some other strategies ;)


    1) Is it good to play golf with only one club? Those who can play with one club are not newbies ;)

    2) If I only master top-spin forehand drive in tennis, does that make me a good tennis player? What about lob, drop shot, underspin slice, backhand and other strokes?


    Cheers!

    P.S. Beware the man of one book ;)

    ReplyDelete
    Replies
    1. Relating this to sports. I was a sch team basketball player and I had almost perfected the designated skill or role for myself - mid range jump shot. Didn't really focus much on other skills except for the fundamentals. Served me well haha.

      But again basketball is a team sport. While investing is a follow undertaking. Hmm.

      Delete
    2. Solo undertaking. Typo

      Delete
  2. Hi CSCCC,

    Why not have your portfolio divided to different parts to each adopt a single strategy? If each works on their own, then you will have a nice strategy diversification - which is different from asset class or style diversification.

    Or maybe you can use them in conjunction with each other to validate certain picks?

    MH

    ReplyDelete
    Replies
    1. Strategy diversification.. Smth New. Thanks!

      Delete
  3. We can always apply multiple strategies instead of stick to one or two.

    Btw, I attended the same session as you, r u from the winning team of the investing game?

    ReplyDelete
    Replies
    1. Hi Richard. Oh u attended too?
      Unfortunately I left before the game due to family stuff so didn't play the game.
      Were u sitting at the front?

      Delete
    2. Oic! I am sitting at the first row in the front, the right most.

      Anyway, let's keep in touch and u can always email me via investopenly@gmail.com

      Cheers!

      Delete
  4. You should have told us you are a blogger!

    I agree with the commentors, having multiple strategies is a strategy by itself :)

    ReplyDelete
    Replies
    1. Hi Alvin. Haha my blog still at nascent stage so didn't really actively go around sharing it.

      Multiple strategies. Hmm I try to master 1 instead of doing a little of many? I need to at least find the anchor methodology.

      But again no guarantee that using multi strategy w rojak portfolio won't work too. Still thinking

      Delete
    2. I went through that stage before. It will take some time to gravitate towards one core strategy as you put it.

      Be patient. As you thoughts get clearer, so does your belief in a strategy.

      Delete

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