Portfolio strategy/guideline

Just curious anybody adopt the follow-the-guru method? Etc warren buffet?

(09-09-2014, 12:24 PM)funman168 Wrote: Just curious anybody adopt the follow-the-guru method? Etc warren buffet?

I try to adopt a "follow-Temasek" method.

Example, the Mapletree family of REITs, telcos, SPH, CMT, SATS, ST Engg.

I used to adopt the follow the local gurus n tycoon method, but after paying for a few "exp" lessons, I changed my style to just follow FA & TA.

(09-09-2014, 01:08 PM)Dividend Warrior Wrote:

(09-09-2014, 12:24 PM)funman168 Wrote: Just curious anybody adopt the follow-the-guru method? Etc warren buffet?

I try to adopt a "follow-Temasek" method.

Example, the Mapletree family of REITs, telcos, SPH, CMT, SATS, ST Engg.

Can follow this or not?
Actually there are just too many to follow. Better find out what suits you then follow. O. K. No?

///////////////
Is it worth your time as an individual investor to read carefully through the financial statements and also to compute ratios and make other interpretations?
ANS:
I doubt it. The conventional wisdom is that by diligent reading of financial statements you will discover under- or overvalued securities. But the evidence doesn’t support this premise. Market prices reflect all publicly available information about a business, including the information in its latest quarterly and annual financial reports.
If you enjoy reading through financial statements, as I do, fine. It’s a valuable learning experience. But don’t expect to find out something the market doesn’t already know. It’s very unlikely that you will find a nugget of information that has been overlooked by everyone else. Forget it; it’s not worth your time as an investor. The same time would be better spent keeping up with current developments reported in the financial press.

Why would you read financial statements, then?
ANS:
To know what you are getting into. Does the company have a lot of debt and a heavy interest load to carry? For that matter, is the company in bankruptcy or in a debt workout situation? Has the company has a consistent earnings record over the past 5 or 10 years, or has its profit ridden a roller coaster over this time? Has the company consistently paid cash dividends for many years? Has the company issued more than one class of stocks? Which stocks are you buying relative to any other classes?
You should know the “financial architecture” of a business before putting your capital in its securities. Financial statements serve this purpose very well.
One basic stock investment strategy is to search through financial reports, or financial statement data stored in computer databases, to find corporations that meet certain criteria-for example, whose market values are less than their book values, whose cash and cash equivalent per share are more than a certain percentage of their current market value, and so on. Whether these stocks end up beating the market is another matter. In any case, financial statements can be culled to find whatever types of corporations you are looking for.

Is there any one “litmus test” for a quick test on a company’s financial performance?

Yes.
I would suggest that you compute the % increase (or decrease) in sales revenue this year compared to last year, and use this % as the baseline for testing changes in bottom-line profit (net income) as well as the major operating assets of the business. Assume sales revenue increased 10% over last year. Did profit increase 10%? Did account receivable, inventory, and long-term operating assets increase 10%?
This is no more than a quick-and-dirty method, but it will point out major disparities. For instance, suppose inventory jumped 50% even though sales revenue increased only 10%. This may signal a major management mistake; the overstock of inventory might lead to write-downs later. Management does not usually comment on such disparities in financial reports. You’ll have to find them yourself.

Do financial statements report the value of the business as a whole?
Ans:
No. The balance sheet of a business does not report what the market value of a company would be on the auction block. Financial statements are prepared on the going concern, historical cost accounting basis (accrual accounting basis) not on current market value basis. Until there is a serious buyer or an actual takeover attempt it’s anyone’s guess how much a business would fetch. A buyer may be willing to pay much more or only a fraction of the owners’ equity (book value) reported in its most recent balance sheet.
The market value of a publicly owned corporation’s stock shares is not tied to the book value of its stock shares. Market value, whether you are talking about a business as a whole or per share of a publicly owned corporation, is a negotiated price between a buyer and seller and depends on factors other than book value.
Generally speaking, There is no reason to estimate current value of replacement cost value for a company’s assets and current settlement values of its liabilities.* *(Exception to this general rule are when a value has to put on the stock shares of a privately owned business for estate tax purposes or in a divorce settlement.) Furthermore even if this were done, these values do not determine the market value of stock shares or the business as a whole.
The market value of a business as a whole or its stock shares depends mainly on its profit-making ability projected into the future. A buyer may be willing to pay 20 times or more the annual net income of a closely owned, privately held business or 20 times or more the latest earnings per share of publicly owned corporations. Investor keep a close watch on the price/earnings (P/E) ratios of stock shares issued by publicly owned corporations. Also it should be mentioned that earnings-based values are quite different from liquidation values for a business. Suppose a company is in bankruptcy proceedings or in a troubled debt workout situation. In this unhappy position the claim of its debt securities and other liabilities dominate the value of its stock shares and owners’ equity. Indeed the stock shares may have no value in such cases. B

I decided to post this in the interest of sharing even though I expect a lot of true blue value investor buddies out there to critique my portfolio strategy as heresy.

First some contextual background.

I am currently unemployed / retired and am dependent on my portfolio. I spend my dividends and recycle my capital gains into my portfolio to outrun inflation. This necessitates that I am almost always fully invested (ranging from 0 to 20% portfolio cash – currently around 10% cash) as the current return to cash is too low to support my spending.

Since I live in Singapore and spend Singapore dollars, I hedge my currency exposure by investing only in the Singapore market. But this does not mean that I am totally dependent on the Singapore economy. SGX listed companies are to a large extent leveraged on Asian economies beyond just Singapore.

The starting baseline of my portfolio strategy is the development of a portfolio that can outperform the STI. The key focus is on the overall performance of the portfolio and not outstanding individual positions as I am not smart enough to do the latter. I track the former religiously because if I cannot outperform the STI then the old saying comes into mind i.e. “if you can't beat them, join them”.

My portfolio strategy does not conform to Fundamental Analysis per say (but it definitely is not Technical Analysis either). If I am forced to label my approach, I would say that it tends towards Smart Beta along the lines of what Aggregate Asset Management does and what Teh Hooi Ling used to advocate in her BT Show Me the Money columns.

Readings that have shaped my investment portfolio thinking include The Intelligent Investor: Stock Selection for the Defensive Investor, Fama–French Three-Factor Model and Tweedy Browne’s What has worked in Investing.

The parameters I am currently using in my portfolio strategy come from Joel Greenblatt’s Magic Formula, O'Shaughnessy What Works on Wall Street and Research Associates Fundamental Index. In a nutshell, what to buys is based on PE and ROE, when to buy is based on RSI and how much to buy is based on dividend yield and market capitalization.

My portfolio strategy is manageable only because I really do not go in depth like most buddies here. I have about 70 counters in my portfolio (almost 10% of SGX offerings), mostly small and mid-caps. My biggest position comprises only about 3.3% of my overall portfolio size.

Contrary to WB favorite holding period is forever, I feel that it is okay to turnover my portfolio as there is no tax on capital gains in Singapore.

I turnover about 20% of my portfolio per year. My turnover approach aims to improve the overall portfolio metrics over time i.e. increase the overall portfolio underlying weighted earnings, ROE and book value.

My turnover approach is only done a little bit at a time to minimize the illiquidity risk as small caps tend to have high bid ask spread. This also has the additional advantage of minimizing a common behavioral investing mistake that I tend to make i.e. it manages my action bias.

My final takeaway on portfolio strategy is to reinforce Uncle Temperament’s insight i.e. success comes from picking or developing a particular portfolio strategy that fit’s your own temperament.

Cheers and happy investing to all!

for me, i research though all 800 stocks on SGX. And then cherry pick the best ones.

(09-09-2014, 07:29 PM)wahkao Wrote: for me, i research though all 800 stocks on SGX. And then cherry pick the best ones.

WOW!
Compare to you i am very, very the lazy.
You deserve to make money if by "homework" alone and everything being equal.

Slightly esoteric.. but I think what Bruce Lee said applies to investing.

“Obey the principles without being bound by them.”

You need to learn the rules before you can break the rules.

But that only comes with experience. Investors without the requisite experience are probably better off following simple guidelines like (1) avoiding S-Chips (2) avoiding highly leveraged companies (3) finding companies with long term track records and so on.

Wow, do you track all of the 800 counters too?

(09-09-2014, 07:29 PM)wahkao Wrote: for me, i research though all 800 stocks on SGX. And then cherry pick the best ones.

(08-09-2014, 07:35 PM)funman168 Wrote: Hi all,
So you hv any portfolio strategy & personal rules/guideline to share?

Personally mine is as below:
1) Speculative (30%)
- take profit after 50-100% gain, left profit to catch remaining run up
- cut loss rules apply

2) Dividend (40%)
- only solid co with gd track record
- just ride the whole mkt trend till the big bear comes along

3) Defensive (30%)
- A$ FD, accumulate when below LT av
- keep in CPF

It might be more useful to state your investment objectives. The strategies and allocations defines how you going to arrive at the objectives.

Some due to a longer horizon will have higher return as an objective. Others due to the shorter horizon or capital protection in mind, might go defensive.

In essence, strategy/allocation without an objective will not gel.