Sunday, 16 October 2016

Some Thoughts on Collecting Good Stuff

In my earlier post, I blogged about having the 'collector' mindset to view stocks of strong companies as collectors item worthy to be collector slowly and patiently during market mini crashes like the ones we had in Jan-Mar this year - COLLECT GOOD stuff at CHEAP price.

More recently during the Brexit vote, market dropped again and I viewed it as a good opportunity to deploy some cash to collect some shares. So what have I got this round?

Comfort @ 3.65; UOL @ 5.4; SPH reit @ 0.935; M1 @ 2.42; HSBC @ HKD 50.5

Fortunately, these holdings are are all in the green with varying profitability. Sometimes when the market rise higher and I looked at them with large amount of earnings it does feel good and I give myself a pat on the back. Other times when market is down and I know their value would drop in tandem too then I will just look at them less often to minimise emotions of regret.

There are a few things I would like to share my thoughts on regarding this 'Collection' mindset.

Patience is important
i can never over-stress or over emphasise how important patience is. Patience is the ability to sit tight and do nothing when you see your cash piling up, stocks in your watch list keep rising, your portfolio grow bigger, individual share's profits growing.

You must be able to resist the temptation to use your cash out of fear that it is not being put to good use and being eroded away by inflation; to buy companies in watch list that are getting expensive at high PE for fear that you will miss out; to sell some of your shares and take profit as you worry that they may drop later.

The key is really to hold your gunpowder dry and only buy when the market has shown a meaningful drop. Not the kind of 1.5% drop in STI we seen this week or the 45 points drop in single day. These are really minor compared to the kind of fall we seen last Aug, this Jan or even during the Brexit. Its really about having a  long term and broad view of the market, on a 2 year time frame, and only buy when market has dropped like 15% from recent peak. When you compare current price with maybe half year ago or one year ago, it is cheaper by 20% now so its worth it.

After all we are investing to increase our net worth and assets sufficiently to provide for us 15 20 years later. Why bother about the few days drop of 1-2%. This is a note I have been trying to drill into my brain and investment process.

And think about it this way. The more patience you have to only buy at significant market drop, the more frequent and longer period you will enjoy you portfolio and individual shares showing a profit. This is a strong enough motivator for me.

How much to buy each time
Generally I will look at the nature of the company to determine how big a portion it should take up in my portfolio. If its a blue chip I would not mind it constituting about 10%; if its a blue chip reit it can be as high as 15% to augment the cash flow. If its a smaller growth company I will usually make it a 6-8% weightage.

Based on this rough number, I will at least use half of that amount to buy during the first tranche. I may use even 65% for blue chip. The rest will be left for next round addition when market drop quite a fair bit, or individual share price drop around 20% or so.

My thought process is I am already buying at a rather good price during meaningful market correction. That puts me in a good position, and gives me mental comfort to buy in a meaningful amount enough to make a difference to my portfolio.

In essence, buy an amount significant enough to make meaningful positive difference to your portfolio, and an amount comfortably small to not burn a hole in your portfolio when it drops another 20%. 

But if the market crash big time next 2 months? Like the GFC period? I still have my 20% cash buffer to buy cheaper, plus the dividends that flow in regularly.

After all, when your investment time horizon is 15 or 20 years, one should not worry about big plunge in portfolio value when the next GFC comes because throughout all the crashes in history, market has been able to bounce back. We instead should be worried about whether we have cash to buy during crash.


3 comments:

  1. Agree a lot.

    Often we just need to remind ourselves from time to time what our horizon and investing goal is that we want to avhieve.

    ReplyDelete
  2. Agree a lot.

    Often we just need to remind ourselves from time to time what our horizon and investing goal is that we want to avhieve.

    ReplyDelete

  3. Great post. looking forward for more. I suggest to open a binary options demo account first to try out.

    ReplyDelete

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