That is why it is important to build your portfolio around a coherent plan. If you don't, then it is very easy to unwittingly react to recent events.
Think back, for instance, to how you reacted to events such as the US fiscal cliff, the US debt ceiling, SARS, avian flu, interest rate rises, interest rate cuts, Quantitative Easing, the European debt crisis etc...
Were you one of the many who were afflicted by Recent Event Syndrome? Did you put your investments on hold because you bought into the idea that "this time it is different" only to find that it wasn't?
It is not easy to ignore recent events because these events are really happening. However, as investors, we need to remind ourselves that over the long term shares rise, which is why Warren Buffett quipped that his favourite holding period is forever.
Buffett also said: "The rich invest in time, the poor invest in money", which, in my view, is probably one of his most powerful quotes.
If you want to be rich, it is important to regularly invest in a robust portfolio of shares that will reward you over time with capital gains and dividends. The richer you want to be, the more you should invest. But if you want to remain poor, then invest in money.
Rock – Thank you for sharing your investment ideas. I feel strongly that it is of primary importance for each individual investor to first understand himself, his risk appetite, resources, knowledge, experience and emotion level towards the “ups & downs” of the investment environment before working out an investment plan suitable for himself.
Warren Buffet and many others have great investment ideas and methods that work wonderfully for them. However, small investors who attempt to follow them BLINDLY may find themselves akin to putting on a hat that is too big for their heads that it may cover their eyes; they cannot see the path ahead well and thus risk walking into the “longkang”. Just a simple illustration, Warren Buffet has no problem buying a good stock and can do averaging down in a big way should the stock price falls [buy more of a good thing at bargain price - great strategy]. How many small investors are really able to do that?
It is a fact that stock market moves in cycles (bull & bear, big and small). At the height of a big bull market, some analysts and fund managers often realize the danger of the downside and advise investors to switch into good safer so-called defensive stocks – also be regularly invested? History has shown that when the bear market sets in after a big bull market, good blue chips defensive stocks also die – in defending position. Those who bought Venture and SGX at $13 or DBS at $21 [not the highest level] in 2007 are still nursing their wounds and waiting to recover their losses today. Investing REGULARLY in the stock market may be a good strategy for Warren Buffet, and may be for you, Rock, but I think it is certainly not a WISE move for small retail investors like me and many others having limited resources.
As rightly point out by Observer2 - build your portfolio around a coherent plan. If you don't, then it is very easy to unwittingly react to recent events. Events such as the US fiscal cliff, the US debt ceiling, SARS, avian flu, interest rate rises, interest rate cuts, Quantitative Easing, the European debt crisis etc...
Our porfolio can be group into 3 to 4 groups. Examples below:
1. Growth stocks 2. Undervalue properties 3. Yield stocks 4. Penny & S-Chip
1) Growth stocks - Keep track of the company business growth in term of revenue, margin, profit, cash-flow and debt. Growth stocks business must be resilence in nature because any crisis mention by obserer2 will derail the company business. Growth stock should pay yearly dividend of at least 3%. (Holding cost)
2) Undervalue Properties - There are many undervalue properties highlighted in the forum especially those mentions by Sumer. At this point of times I don't see much incentive unless someone offer to buy over because of Government properties control measures. Most of these stocks dividend is very low. CES is stand out among the rest as it had been paying 4 cents yearly which is more than 5% yield. There are some companies paid themself only but not the shareholders as highlighted by Greenrookie.
3) Yield Stocks - There are a numbers of REIT with yield of over 7%. I am moving back to REIT gradually as the yield is getting attractive again. Early in the year I had sold off REIT gradually when the yield fall below 6% & sold off all the REIT holding when the yield fall below 5.5%.
4) Penny & S-Chip - I am not tempted by these group. Those who like to trade in this group my advice is not more than 5% of your porforlio. History had prove that many had made money during the bull market, if not careful will lost more than the gain in bear market.
Watch out for the 3 types of value traps highlighted by Greenrookie. As mentioned by Observer2 "Primary importance for each individual investor to first understand himself, his risk appetite, resources, knowledge, experience and emotion level towards the 'ups & downs' of the investment environment before working out an investment plan suitable for himself.
As I had highlighted previously "Criss offer the best oportunities" When market getting too hot 'increase cash holding', when 'market getting too cold', great oportunity for buying.
Observer2 – Agree that small investors should not follow Buffet blindly , but most of what he said are relevant , and he is generous to share his knowledge FOC with anyone who care to listen. IMHO, the problem is that most retail investors don’t fully understand what he says. I wish I had taken him seriously when I was younger. Now I tell my kids that they should still read extensively to improve their horizon, but they should only trust Buffet when it comes to investing. Many investment books I have read are crap, some written by losers who will lead us to the poor house.
The ancients have lots of strategies too. A friend once told me that if we apply the 36 Stratagems, we can rise to be the CEO in double quick time. But we can’t use all the strategies, as some are cruel and immoral. The other book is Sun Tze, which I use at work and even at home LOL. Most strategies are actually common sense, which we have lost in the rat race. eg Sun Tze “ Know your enemy, know yourself and you will win a hundred battles” is to do proper groundwork and know our own limitations. And don’t forget these books originated from the land of S-Chip CEOs.
I think most retail investors will eventually lose money ( I consider not keeping up with inflation as losing) but I believe that we can learn to be better investors. IMHO, the rich invest differently , so they will become richer. The not so rich aim for multi baggers all the time, hoping to be rich overnight, which is not realistic. I think better to learn from the winners.
Buffet quote: “ Can you really explain to a fish what it’s like walking on land ? One day on land is worth a thousand years of talking about it, and one day running a business has exactly the same kind of value”
When we invest, we should always bear in mind that BUYING SHARES IS ABOUT PUTTING YOUR MONEY TO WORK. That means looking at opportunities that will deliver the best possible returns for our capital.
That also means looking dispassionately at each of our holdings and deciding whether it merits a place in our portfolios. An often telling question is whether you would still buy a particular share if you did not already own it.
If the answer is no, then why are you still holding it?
We can always sell part of our position in our core stock if we have a big gain and take some risk off the table. That way we put some money in our pocket and have less capital at risk, but will still participate in the upside.
Generally speaking we want to let our winners run, but if it will help us sleep well and stay in the position by taking a little money off the table.
We're never going to time the markets perfectly. No one can. But by sticking to the rules above, we'll hang in there longer and when we're right, you'll actually make money.