The Sunday Times last week on “A Bullet Proof Portforlio For Protection” which makes a case for diversified investment porforlio of stocks, bonds, cash and gold seem interesting. The case study for 10 years from 2003 to 2012 achieved compound growth of 10% return.
Blue chip stocks basically miror business cycle; bonds are low yield & gold have no yield but high carry cost.
My Bullet Proof Porforlio are: Profitable Growth Stocks - business resilience in nature, able to performce yearly & pay dividend. Max PE of about 15 to 20 & dividend yield minimun 3%;
The second group - Reit minimun dividend yield about 6%.
The third group - Undervalue properties which have buffle a safe margin of risk.
Base on these key guide lines my stocks selection are:
Cordlife – Resilience business & generate healthy cashflow. Revenue increase about 20%. Profit last 2 quarters increase by about 50%. Net profit margin 34%. PE now about 15 & dividend yield about 3 to 5%. No debt.
Straco – Resilience business & generate healthy cashflow. Revenue increase about 10%. Profit increase by about 20%. Net profit margin 34%. PE now about 13 & dividend yield about 4 to 5%. No debt.
Cambridge, First Reit & Sabanna - All 3 able to perform yearly and dividend yield still above 6%.
Second Chance - It just as good as reit, dividend above 7%.
Undervalue Properties – CES, HH, Superbowl & Roxy Pacific. All these stocks have good run in its share price. I have sold almost all because property market is already too hot.
Cash - The bull market already 3 months. Having sold most of my undervalue stocks my cash have increase to 40%. Any market weakness or correction is good time to bargain hunting.
These are my key guide in my investment. For the last 4 years I have beem richly rewarded.
Remember - When you focus on the value, opportunity & potential of the stocks, there is no fear, but when you focus on the market there is alway greed and fear.
What matters to Buffett is the underlying economic fate of the business. "I let my marketable equities tell me by the operating results, - not by daily, or even yearly price quotations. - whether my investments are sucessful. The market may ignore business sucess for a while but it eventually will confirm it"
The main drivers of improved sentiment for the recent bull run come in two component: QE III & lack of bad news.
There is little chance of interest rate increase because of flood of liquidity owing to the printing machines as well as the flight-to-risky-assets trend. Fed chairman Ben Bernanke again indicated his commitment to his money-printing policy, so traders are expecting that the tape will continue to be left on.
In the US, fiscal consolidation is positive for the long term but will be a headwind to growth this year.
Europe remains struck in a no-growth phrase as fiscal austerity and weak corporate and consumer confidence hold back activity.
In Japan, the government together with the Bank of Japan are undertaking more proactive policies.
China growth accelerated late last year on a pick-up in credit growth.
The bull market have been 3 months and need a bleeder or correction. Any market correction will presence a positive catalyst for buying opportunity.
Investors need to be nimble or take a more measured longer-term approach to see through a lot of market noise.
Unless there is a fresh crisis or a fundamental change in the policies of the governments, any correction can only be viewed as a technical correction.
The lessons from Peter lynch listed below should be very helpful to all investors. In fact most of my investment strategy fit in nicely on these lessons. But the challenge is able to identify these conpanies.
So far I have identified Cordlife & Straco. Another potential superior company is Sarin. It's able to growth it business yearly. It's gross profit margin, nearly 70% and net profit margin, more than 30%. Company is debt free and cash rich. Best of all from 2008 to 2012, dividend increase from US0.8 cts to US3.25 cts. Currently Sarin is trading above 20x PE which is on the high side. There maybe other superior companies, can anyone share?
Below are the 11 lessons from Peter Lynch.
11 Lessons From Peter Lynch:
•Behind every stock is a company. Find out what it's doing.
•Never invest in any idea you can't illustrate with a crayon.
•Over the short term, there may be no correlation between the success of a company's operations and the success of its stock. Over the long term, there's a 100% correlation.
•Buying stocks without studying the companies is the same as playing poker - and never looking at your cards.
•Time is on your side when you own shares of superior companies.
•Owning stock is like having children. Don't get involved with more than you can handle.
•When the insiders are buying, it's a good sign.
•Unless you're a short seller, it never pays to be pessimistic.
•A stock market decline is as predictable as a January blizzard in Colorado. If you're prepared, it can't hurt you.
•Everyone has the brainpower to make money in stocks. Not everyone has the stomach.
•Nobody can predict interest rates, the future direction of the economy, or the stock market. Dismiss all such forecasts and concentrate on what's actually happening to the companies in which you've invested.
Lynch's advice had a profound effect on my stock market approach. He taught me that investment success isn't the result of developing the right macro-economic view or deciding when to jump in or out of the market. Success is about researching companies to identify those that are likely to report positive surprises.
A Valuable Investment Lesson for Any Investor
I know investors who have spent a lifetime (and a fortune) in the stock market and have still not learned this lesson. Or lack the intestinal fortitude to follow it.
Worse, there are a number of gurus out there who are convinced that they have the smarts - or a system - that allows them to get in and out of the market just in the nick of time. Yet you'll notice that system (ahem) always goes on the fritz just as soon as you start to follow it.
Count yourself a sophisticated investor the day you wake up and say, "Since no one can tell me with any consistency what the economy and the stock market will do, how should I run my portfolio?"
The answer to that question is: a well-defined, battle-tested investment approach that achieves high returns with strictly limited risk.
Of course, everyone in the industry claims that they're beating the tar out of the market.
Our approach is based on a market-neutral investment philosophy. Our focus is on teaching investors how to seek out the most undervalued opportunities in the market.
As Buffett, Lynch and Templeton famously proved, that's what actually works.
Thanks rock for your sound advice. May I just add that finding solid business is just step 1, next you need to ascertain that solid business has a margin of safety in terms of valuation, third u need the stomach or courage to add on the portilio in a disciplined, regular and diversified manner.
I encourage all serious investors to read "the intelligent investor" by Benjamin graham, I have read quite a number of books before that throughout the years, and many a times they set me thinking about a lot more questions as try provide answers. That 1 book answered most of my questions and is by far the most comprehensive and macro viewed book in investment. But dun try to tackle the book in a day, esp beginners investors, I took weeks of nights and I just covered a few chapters
I am looking at SATs , nam lee pressed metals and LKH. But still waiting for that margin of safety. Oh ya being patient help in investment too
My favorite quote as well as guiding principle for investment.
1) investment is all about managing risks first then returns.
Greenrookie, you wrote "May I just add that finding solid business is just step 1, next you need to ascertain that solid business has a margin of safety in terms of valuation, third u need the stomach or courage to add on the portilio in a disciplined, regular and diversified manner."
Q: What do you consider to be a solid business. Examples?
Q: Margin of safety -- U use P/e, p/b, dividend yield, etc?
I think I can guess your answers to the second question as you have posted somewhere before. While I agree to some extent, I would be mindful of the fact that these are quantitative metrics which will not do investors justice when faced with a super business. The qualitative attractiveness will not be measured in p/e, p/b etc.
to use an analogy, let's say you want to buy fish for dinner, and you set certain metrics -- such as not in excess of a certain $/kg, not more than a certain no. of days since the fish was harvested, etc.
But when you encounter an unusually delicious type of fish, just caught from the sea only a few hours ago, and it's of a variety that is not widely available, you won't be able to quantify these qualities.
In reality, only a few will appreciate these qualities and pay the price accordingly and get rewarded accordingly (from a culinary perspective).
U are most prob right. They are season investors and shrew businessman who can ignore the valuation metrics and know a good deal when they see one. I belong to the ordinary retail masses who just wanted to eked out a decent return. As such, I think retail investors who are just learning should do well to nite the following:
All business however solid must have a price. It's with this current price that we decide if its a good catch. Using your example, if i caught a special breed fish, but it will cost me $1000. I will properly leave it alone not matter how delicious it is. It might be a 10000 fish, and I can only blame myself for not equipping me self to recognize it. But I also felt potential money not earned is better than earned money lost.
Valuation is important not matter how solid a company is, but valuation is not static and definitely cannot be applied across the board. E.g u might give a more generous PE for a growth company, and even more generous one in the twenty if you believe the growth can be sustained for years to come. But to use gut feels is to order food without looking at the price. I use to own trek too, but took profits when it's valuation I felt is high compare to its potential earning.
I dun use static PE, I use historical PE vs PEG over the next 12 months or if possible 36 months .. I also use peer comparison and market valuation over time to determine if its a good but. I also look at other factors such as debt level, roe, , margin, inventories future sales, FCF just to name a few. This is to get a gauge of the business.
Also, valuation method and metric for yield stocks, growth stocks and undervalued stocks are all different. I find growth stock hardest to value, since I will need to predict with some confidence their future earnings. The only stock I bought is CES, I calculate that with its sold out launches, future earnings are more or less confirmed and has a target value of 72 cents over 12-24 months. When it hit my target over a short span of only 3 months, I took profits and risk off the table. On hindsight, it might be a bad call not because it had a better run but I couldn't find another counter with such yield and potential. I am too kiasi to most ppl preferences I guess. Other property counters that I am watching are LKH and wingtai.
Solid business are those with consistent FCF and profit resilience in the face of crisis, preferably with some moat such as significant market shares, major names as clients and stable margin etc. most blue chips would fit the solid business tag but their price is not cheap, or rather market has already prices in their impressive business model.
In short, I support rock's intention of starting this tread. Investment should not be taken as a casino,is should be looking after risks than returns. There are isolated cases like cheong wee who can trade penny and traders who can buy high and sell higher.
The important thing is u must reduce risk by knowing what u are doing. I suffer heavy losses from my speculative investment in s- chips. I thought I can jump in and out o market in time. But it's a good lesson for me, as I now felt earning a decent returns is really possible without Hugh risk, I am look at myself in the mirror and realized I am really just a ordinarily retail investor, who must work hard to know a business well and have margin of safety before I invest. Extra-ordinary returns is tougher than I think, and I will give it a pass