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17-03-2013, 07:38 AM
You shouldn't take such risks at any time, period.
The Straits Times
www.straitstimes.com
Published on Mar 17, 2013
SMALL CHANGE
In no hurry to join penny party
With a mortgage to pay and a baby on the way, financial prudence rules
By Alvin Foo
My first foray into penny stocks was an experience I will find hard to forget.
It was during the super bull run in 2006, and I was a 26-year-old sports journalist with little investing experience.
A chat with a close friend, who has a knack of unearthing market gems, centred on a local penny share with an energy business potential.
As a financially carefree bachelor with no mortgage and no dependants, I had little need to think twice before sinking the bulk of my cash savings into that stock.
It did not matter much that I had just returned from an expensive trip to catch the football World Cup Finals in Germany and had holiday bills to pay.
Thankfully, that counter soared about 500 per cent in less than a year, yielding a handsome profit.
But in hindsight, that was more a brash punt than investing genius.
The highly risky foray could also have gone sour, leaving me with a cash-starved bank balance and full of regret.
Fast forward seven years, and it's a vastly different story.
There's much less desire to join the penny party, which has hit fever pitch with daily trading volumes hitting an all-time high of 12.2 billion shares late last month.
Being a married man with a mortgage to pay and the first child on the way has altered my risk appetite.
I've learnt that taking stock of your financial priorities and tweaking your risk profile along life's journey will make transition into the next chapter smoother.
There are now added responsibilities that call for more prudence.
So the focus is more on dividend-yielding plays such as real estate investment trusts (Reits), telcos and blue chips these days.
There is just the occasional glance at the penny counters, more out of job-related interest as a financial journalist rather than for personal investment.
True, Reit stocks may not treble in value in a few months or even mere days like some of the penny counters, but they don't sink as much either when the market heads south.
They yield a regular dividend and serve as a good hedge against high inflation amid low interest rates.
Singapore Reits have not fared too badly either.
In fact, they were the best performers for that sector globally last year and they are tipped to shine this year too.
The FTSE ST Reit Index - an index which tracks such counters - surged nearly 40 per cent last year, easily outgunning the benchmark Straits Times Index, which gained 20 per cent.
In a similar vein, telcos offer a healthy dividend yield of at least 4 per cent.
Based on last year's dividends, 1,000 shares in either one of the three telcos can pay for three months of a $50 monthly mobile bill, according to a recent Singapore Exchange My Gateway report.
Aside from developing an appetite for different kinds of stocks, I've also made holding sufficient cash a higher priority.
This translates into keeping at least six months' worth of living expenses in cash, a rule of thumb usually advocated by financial planners.
A recent JP Morgan Asset Management investment guide showed that developed Asia households - these include Singapore, Hong Kong, South Korea and Taiwan - held about 55 per cent of their portfolios in cash and deposits.
My other simple but significant financial principles these days include not overcommitting on the first property and being able to live on one income.
I may still consider the odd penny stock, but only after studying its business model, dividend potential and valuation closely.
And you won't catch me emptying my bank account on a single counter ever again.
alfoo@sph.com.sg
The Straits Times
www.straitstimes.com
Published on Mar 17, 2013
SMALL CHANGE
In no hurry to join penny party
With a mortgage to pay and a baby on the way, financial prudence rules
By Alvin Foo
My first foray into penny stocks was an experience I will find hard to forget.
It was during the super bull run in 2006, and I was a 26-year-old sports journalist with little investing experience.
A chat with a close friend, who has a knack of unearthing market gems, centred on a local penny share with an energy business potential.
As a financially carefree bachelor with no mortgage and no dependants, I had little need to think twice before sinking the bulk of my cash savings into that stock.
It did not matter much that I had just returned from an expensive trip to catch the football World Cup Finals in Germany and had holiday bills to pay.
Thankfully, that counter soared about 500 per cent in less than a year, yielding a handsome profit.
But in hindsight, that was more a brash punt than investing genius.
The highly risky foray could also have gone sour, leaving me with a cash-starved bank balance and full of regret.
Fast forward seven years, and it's a vastly different story.
There's much less desire to join the penny party, which has hit fever pitch with daily trading volumes hitting an all-time high of 12.2 billion shares late last month.
Being a married man with a mortgage to pay and the first child on the way has altered my risk appetite.
I've learnt that taking stock of your financial priorities and tweaking your risk profile along life's journey will make transition into the next chapter smoother.
There are now added responsibilities that call for more prudence.
So the focus is more on dividend-yielding plays such as real estate investment trusts (Reits), telcos and blue chips these days.
There is just the occasional glance at the penny counters, more out of job-related interest as a financial journalist rather than for personal investment.
True, Reit stocks may not treble in value in a few months or even mere days like some of the penny counters, but they don't sink as much either when the market heads south.
They yield a regular dividend and serve as a good hedge against high inflation amid low interest rates.
Singapore Reits have not fared too badly either.
In fact, they were the best performers for that sector globally last year and they are tipped to shine this year too.
The FTSE ST Reit Index - an index which tracks such counters - surged nearly 40 per cent last year, easily outgunning the benchmark Straits Times Index, which gained 20 per cent.
In a similar vein, telcos offer a healthy dividend yield of at least 4 per cent.
Based on last year's dividends, 1,000 shares in either one of the three telcos can pay for three months of a $50 monthly mobile bill, according to a recent Singapore Exchange My Gateway report.
Aside from developing an appetite for different kinds of stocks, I've also made holding sufficient cash a higher priority.
This translates into keeping at least six months' worth of living expenses in cash, a rule of thumb usually advocated by financial planners.
A recent JP Morgan Asset Management investment guide showed that developed Asia households - these include Singapore, Hong Kong, South Korea and Taiwan - held about 55 per cent of their portfolios in cash and deposits.
My other simple but significant financial principles these days include not overcommitting on the first property and being able to live on one income.
I may still consider the odd penny stock, but only after studying its business model, dividend potential and valuation closely.
And you won't catch me emptying my bank account on a single counter ever again.
alfoo@sph.com.sg
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
