When I read an article written by Teh Hooi Ling titled “Knowing the market and companies well” (The Business Times Weekend, May 5-6 2012), I felt that I shared similar sentiment and attitude towards investing.
Ms Teh wrote about her friend who is an experienced investment professional, having been a fund manager and a trader. This friend has left the profession and is now managing his own portfolio. His philosophy towards investing includes the following principles and investment attitude.
1. Focus on Singapore equities. Singapore stock market is the market he is most familiar with. I too focus on Singapore equity only.
2. Invest in companies with good business fundamentals. This covers fundamentals such as positive cash-flow generating business, no change in competitive advantage, and a competent and accountable board of directors. Some companies on the Singapore Exchange have these attributes and are considered defensive stocks that will not fluctuate wildly under a difficult global business environment.
3. Attend Annual General Meetings (AGMs) to get a sense of competency of management and whether the management team is shareholder-friendly. Questions were asked of management and he will gauge the responses to these questions. In this regard, I have yet to attend AGMs. I make up for this shortcoming by reading annual reports and news relating to the companies.
4. Stay away from real estate investment trusts (reits). He sees the interest of the shareholders (unitholders) and reits managers are not aligned. I too avoided reits in my portfolio. In the past, I was chasing several reits as they were launched. These reits fell in value during the global financial crisis. They have not recovered ever since. In any case, there are many good companies (other than reits) and one cannot keep up with too many companies in one’s portfolio.
5. Hold only 8 – 10 stocks in portfolio. As mentioned above, it becomes challenging to keep up with too many counters. Stock selection and retention or disposal will be based on business fundamentals. If the business continues to be a good business, he will stay invested with it despite the daily movement of share prices. I have 12 stocks in my current portfolio and this is actually quite a lot to keep up.
6. Restrict the exposure to each stock to an upper limit of his total portfolio. If a share price spikes and the upper limit is breached, then he will sell some holding to bring the stock down to the limit. This way, he locks in gains from share price increase. This approach is to prevent putting too much fund into few stocks. This is spreading the risk of investments.
Copyright © 2012, limkimtong for Living Investment
The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.