Dear all, sorry for the delay in my portfolio update and the lack of posts. Have been very busy in school. 2009 is a good year, I have gained more knowledge, became much wiser and met many more valuable friends! I am forever grateful to them. :)
This year I did not perform as well as I would loved to. The STI ETF gained 66.3% including dividends while my portfolio only gained 58.8% this year, underperformed the STI ETF by 7.5%. To recall, my goal is to beat the STI ETF by 10% every year. Annualised return was 28.3% and hopefully I can improve further.
Cashed out $10k to give some to Mom and went for a holiday to reward myself. Still have around $4k which I would transfer into my trading account.
I will post the lessons learn't in 2009 at a later date.
Always keep an open mind, doesn't matter if it's TA or FA. Sometimes both will work and sometimes both doesn't work. Depends on how you use it. LOL!
Wishing everyone a happy tiger year! (And Yes! It's my year again, haha...) :D
7 comments:
There is no good or bad tools only have good or bad carpenter
Yup yup! :D
grats on your good performance. Just curious about one thing, I noticed that your investment amounts differ from stock to stock in your portfolio. Can I understand further as to the factors that led to these differing capital allocations?
Hi anon (January 18, 2010 12:05 PM),
Higher allocation = high probability of success, lower risk, higher margin of safety.
Lower allocation = Higher risk, high returns, greater element of speculation, margin of safety is there but uncertain.
Allocating capital is a subject many often dont talk about. One would want to allocate more on the stock that generates the highest returns over time. However, the market very often surprises people.
ChinaAcorp is 100% speculative so I allocate small, my first investment mistake. I am very confident of Kingsmen that's why I put in big. SBS is defensive during the 2008 years, low risk but also low returns, since I did not short the market, went to look for defensive stocks. As you can see, lousy returns in the end.
Adampak is a pure value vs assets and earning power play. Too cheap to be ignored at that time. I allocated small being mindful on value trap.
SMRT is also defensive play, earnings are good, divy is good, price is below fair value. I allocated small because I dont expect much movement, hence low returns. But now I am wrong. Could have net a 25% return. It's also tough to pick a top.
Allocating capital same as buying companies is also part art, part science and a little bit of luck. :)
Cheers!
Cheng
Though not as good as you wished to, you still deserve a pat on your back!
Awesome work chap!
Keep it up!
*wink*
Hi Cheng
Thanks for the reply. I hope you dont mind if I ask a bit more? Because I am currently struggling with teh same problem myself.
Do you have any fixed rules on how much you put into each position? eg x% of portfolio value, or x amount based on probability of profit?
Is it based on your personal view of the size of the margin of safety? and how are you valuing your stocks? based on PE, NAV or some other measure?
Once again, appreciate you sharing your thoughts on this subject
Hi Leps,
Apologise for the very late reply.
Here is how I measure risk.
Imagine 3 scenarios of investment probability:
1) 90% chance of using $1 to make $10
2) 9% chance of losing 10cents on that $1
3) 1% chance of losing everything
Would you make that bet?
According to Kelly's formula(getting technical here), how much would you bet on your capital?
(0.9 x 10) + (0.09 x -0.1) + (0.01 x -1) = 8.981
So, Kelly's formula states that the maximum amount of capital one should place on this bet is 8.981/10= 89.8% of capital.
However, there is still a 1% possibility of losing everything. Would you still make that bet for a possible 90% chance of a 10 bagger?
So if I include a margin of safety 50%, I would bet approximately 45% of capital(89.8%/2).
What if you have identified 5 companies of high returns and low risk(doesn't mean no risk) of this criteria, how would one spread the risks?
After using Kelly's formula:
Company 1: 85%
Company 2: 80%
Company 3: 90%
Company 4: 70%
Comapny 5: 75%
Total: 400%
Here is how we should allocate:
Company 1: 21.25%
Company 2: 20%
Company 3: 22.5%
Company 4: 17.5%
Comapny 5: 18.75%
Total: 100%
Also, the higher the probability of not losing money, I will allocate more capital.
P/E and NAV is an indicator to objectively measure whether you are paying more or less for the company. One would want to buy a company with a lower P/E as compared to the industry average.
NAV is your safety net, according to Graham, one would not want to buy companies that are worth 1.5X more than NAV. However this is debatable. To value using NAV, the investor is looking at liquidation value, since you are not going to split this company, there is very little value in using NAV to value a stock. It just tells you how much more you are paying for the cash generating asset. Ultimately you would want to see companies have strong recurrent free cash flow (FCF) earnings from the cashflow statement. I look at past 5 years FCF. I would like ROE to be more than 15%. Earnings are the key driver of great businesses.
Dividend is also a good indicator on the value of a stock. Typical dividend payout for a non-reit company is about 2-3% pa. I would prefer dividends to be more than 4.5%. If dividends are more than 5%, you can consider it a good bargain if earnings did not drop.
I do not like companies with lots of debt. Preferably, their current assets will be able to offset the current liabilities.
Lastly, the selection of industry to invest is also important, is it a booming or falling industry? It is also important to compare against the industry peers.
As a retail investor, we can be more picky unlike institutional investors.
Post a Comment