Investment Reflection: Asset Allocation

With recent corrections, I have been actively looking at stock market. I have sharpened my finance skill to read financial data. In order to make sound investment, I have also made an effort to understand more of the various businesses and their future outlooks. I would say I have become a more technical and proficient investor during the process. At the same time, I know much better what the world is happening.



This is not all. I still have plenty to learn. However, I feel this is not healthy, given my already fully occupied schedule. I find myself "multi-tasking" to unleash my financial potential to the maximum. I do it before and after my family sleeping hours, while travelling to/fro work and pockets of time when I am alone. For example, while in toilet (don't think you want to know so much details). So, I decided it is time to "discipline" myself.

I am only active in stock market when it is tanked. I don't have problem when the stock market is doing extremely well. Moving forward, I decided to only spend 1 hour daily to read news and looking at stock market during market turmoil. I will do it early morning, during lunch break from work and while travelling home.

Asset Allocation
Given the recent correction at about 20% from the peak, I am supposed to be 40% invested in equity. You can read my asset allocation here. Currently, I am 20% invested and I am only looking to be 30% invested the most now. Yes, you are right, I did not follow my plan exactly. This is because my asset allocation is a rough estimate. This is also why I asked you not to follow any "star" blogger (of course not talking about me) closely on your investment decision. Situations changed quickly, faster than any star blogger can manage to update their new post. Most probably, they will not update 100% of their trades. Not to mention, you may not be able to follow every minute on what the star blogger says, even if they are able to share by minute.

I would like to update my asset allocation a little:

Using STI ETF as reference	Cash	Stock (capped at)
≥ 5 years historical high	90%	10%
10% dip from highest	85%	15%
15% dip from highest	80%	20%
20% dip	70%	30%
30%	50%	50%
40%	30%	70%
50%	20%	80%
60%	10%	90%

My watch list: STI ETF ($2.8), CapitaLand Commercial Trust ($1.295 & $1.17), AIMS AMP Capital Industrial REIT ($1.22), Keppel Corporation ($6.5 & $5.85), Starhub ($3), local banks. May add 1 or 2 more to the list soon. You may notice some prices seem too low for now, but it is just my asset allocation strategy. Please don't take reference from mine as I have other financial instruments to invest. This is more for my personal tracking.

My family and I are going for a vacation to Taiwan for 9 days. I will not be able to reply any message or look at the stock market (I hope). See you!

Wake Up! Understand Yourself And Your Money

*Warning, this post is not about making you happy, but to remind you to stay in the reality.

With recent market slight correction, I can see many anxious and worried faces. Some of the investors' portfolios have went to the red and have not much cash on hand. I am just wondering, these investors can only perform well during bull run? It is fine if they hold long term and that is what investment is about.



Take Sanye's recent sharing. He surrendered his insurance life policy and get back more than double of what he has paid. Many people are sceptical about insurance and they think they can do much better by buying term and invest the rest. Is it true? Again, I am not advocating buying insurance, but insurance at some points of our life is important to mitigate risk. Even the rich has insurance. Just don't over-insured or buy nonsense policy that don't value-add to your life.

I am not pouring cold water or add salt on the wound for those have been injured recently in the stock market. I wanted to remind myself of my financial goals and my asset allocation strategies. Let us think about what are the possible investment vehicles that we can tapped on.

One way is to invest in index fund. You will be fine if you stick to your asset allocation strategies. You wouldn't be ultra rich by doing so, but if it met your goals, why not? Don't have the "wow" factors?

If you are an active investor selecting stocks individually, do remember to apply asset allocation strategies and stick to your financial goals. Stop competing with others unless you truly enjoy it. It is extremely simple, buy low and sell high. I know it is impossible to time the market. This require self-awareness. Do some research about stock market, come out with your strategies and stick to it.

Never, never follow what other bloggers are buying. Extremely dangerous approach. If you are always competing and envying investors can earn xx dollar because of this stock and that stock, you are in a danger. You are not a sheep and you don't need to be collectively uniform. You should ask yourself what is your financial goals and plan a strategy. Stick to it and implement some flexibility to it.

I hope this post value-add to your investment journey.

Oh yeah, credit to my wife, I have a new super frugal daddy mascot!

Frugal Daddy

Asset Allocation Strategy

For simplicity, I will only look at Cash and Stock rebalancing, neglecting my bond/bond-like instruments.

Using STI ETF as reference	Cash	Stock (capped at)
≥ 5 years historical high	90%	10%
10% dip from highest	80%	20%
15% dip from highest	75%	25%
20% dip	60%	40%
30%	50%	50%
40%	30%	70%
50%	20%	80%
>50%	10%	90%

This will not be 100% possible due to market fluctuation and opportunities to buy, hold and sell stocks. However, this served as an ultimatum to be balanced.

Question: Which company to invest during the dip?

I will be looking at companies that dipped more than STI ETF as it could reflect a possibility of overselling by pessimistic market sentiments. Another good purchase opportunity will be new entrant with growth potential. Last but not least, companies with undervalued stocks are good buy too. All in all, the asset re-balancing should not exceed the equity cash value capping.

Question: How do I ensure the dip is due to market sentiments, and not deteriorating companies’ fundamentals?

Companies that dipped along with STI ETF may also signify other major problems. I will be ensuring that I do my due diligence to buy only companies with good fundamentals.

Question: Do I have to sell whenever market sentiments get better?

Once purchased, I will have no intention to sell any of them unless their fundamentals worsen or they are overvalued.

Question: By not selling, how do you re-balance your asset allocation?

For example, if I am 80% invested when market dipped at 50%, thereafter, the market rise to historical high within 5 years. My portfolio will then become lopsided to maybe, 90% equity and 10% cash.

Since I have exceeded the equity capping due to market appreciation, the stocks I have purchased are at much lower prices. This means I can afford to hold for long terms and enjoy more capital appreciation and dividends pay out. As a guide, stock market tends to go higher in the longer run, and we will not be able to know when this will happen. From this point, I will not add on new stock and pay more attention to hold and sell opportunities. The ultimate objective is to maximise returns and have a reasonable safety net. 

Quote from Charlie Munger - The number one idea is to view a stock as an ownership of the business and to judge the staying quality of the business in terms of it’s competitive advantage. Look for more value in terms of discounted future cashflow than you are paying for. Move only when you have an advantage. It’s very basic. You have to understand the odds and have the discipline to bet only when the odds are in your favour. We just keep our heads down and handle the headwinds and tailwinds as best we can, and take the result after a period of years.

Question: How about rights issue if I have reached equity capping?

Ideally, I should be leaving 5% buffer for such scenarios.

Question: As I am building my stock portfolio from scratch again, if the market don’t dip, does that mean I will never buy?

As I have en-cashed all my profits earlier, I don’t own much stocks now. However, I believe stock market is cyclical. If the market keep on going up, you just need to be patience. It can be 5 years or 10 years and I could have missed a lot of boats. So be it. Just take this opportunity to prepare my data and accumulate my warchest. Once the opportunities are here, I will make sure I use my precious cash and data to great use. It is easier to pluck low hanging fruits. Having say that, buy opportunities are always available. For example, new entrant with growth potential or undervalued stocks.

Quote from Charlie Munger - If you took our top fifteen decisions out, we’d have a pretty average record. It wasn’t hyperactivity, but a hell of a lot of patience. You stuck to your principles and when opportunities came along, you pounced on them with vigor.

Conclusion

This is my first step towards a more active investment portfolio. I will not rush into the stock market without an investment strategy. I rather missed the boat than risking losing my capital without convincing calculated risk. This is me. I have no qualm about holding excessive cash if need to. I will always resort to higher yield cash instruments like OCBC 360, Fixed Deposit or 5 years bonds. Upcoming, there will be Singapore Saving Bonds. Having said that, I still target 6% average yearly returns. All I need is a good entry point into higher yield opportunities. I believe when opportunities arise, I will have the courage to act. Quote from Charlie Munger : Extreme patience combined with extreme decisiveness.

Next step, it will be working on stock analysis to decide on buy, hold and sell.

My last famous quote from Charlie Munger : It takes character to sit there with all that cash and do nothing. I didn’t get to where I am by going after mediocre opportunities.

Frugal Daddy