Improvements to portfolio is no one time effort in a long term perspective. Market conditions are ever changing, similar to the political situation that is happening around the world.
Israel-Gaza war have became worst after the kidnapping of 3 teenagers. The conflict between Ukraine and Russia have not resolved itself. Furthermore, MH17 was brought down by Ukraine rebels which caused the intervention of other countries. China was getting more aggressive in the claiming of islands that caused unhappiness in the South East Asia region.
So much happenings around the world and stock markets react differently at different periods. Stocks may move because certain funds pump in lots of money to buy it. The big players are powerful enough to control the direction of the markets.
Therefore, retail investors like us have to be vigilant in the type of stock we choose.
Enhancing your portfolio
Most people sell stocks when they are high and buy stocks when they are low. That is not what i think should be the right approach to long term investment, because long term investment depends a lot on stock performance consistency. For example, i bought Vicom 4 years ago at $2.60, today's price closed at $6.68. Earnings per share is valued at $4000.
From this lesson, i inferred that stocks that do well consistently are more likely to continue doing well due to their business model. Therefore, instead of selling stocks that do well, you should sell stocks that are not doing well and buy stocks that have been doing well so that it will continue to perform well.
Do not take deliberate advice from brokers because brokers do not have any responsibility with regards to the money you earn or lose, they only earn the commission when a trade is executed. Therefore, it is important to do your own portfolio management and decide what is good for your portfolio in the long run.
Do not be afraid to cut losses because when a stock is not doing well, it is harder for it to recover. Take a poor person for example, how long do you think he needs to be rich if he does not have enough money to make money.
This theory applies similar to companies that are not doing well. Therefore, it is essential to cut losses when necessary.
Approaches to Portfolio Management
There are a lot of stocks out there that performed really well over the last few years, and achieved a certain level of consistent performance. Although i agree that high dividend stocks are sometimes risky and therefore company is able to pay out high dividends to allow investors to take up some of the risks. However, there are still companies which are backed up by fundamentals and yet rewarding for shareholders.
In this section, i will talk about how i continue to invest in the type of companies that are both rewarding and less risky.
Portfolio management means that it is a continual process of managing your basket of stocks, stocks that will do well and what stocks that have under performed.
I will list down some of the more important details in stocks selection
- Good Branding
- Possess advantages that people will choose over other competitors
- Favorable to the increasing population (Healthcare, Telecoms, Transport, Food, Services)
Excellent financial position
- Government owned companies that are favorable to win key contracts (Temasek Holdings related)
Basis to sell/switch
- Less debt (Debt to Equity Ratio less than 1) or no debt
- Consistent annual profit growth to prove good business
Stocks that are burdened by debts and high operating expenses are facing a lot of challenge . Therefore, it is important to constantly follow up on their quarterly financial reports. Their reduction in net profit growth and high operating expenses are indicators to consider a sell in the stock.
- Loss of competitive advantage / slower in foresight
Increase in debts, operating expenses leading to reduction in profits
- Switched OCBC with DBS after Wing Hang Acquisition because DBS made the move 12-13 years earlier with the acquisition of Dao Heng Bank.
Basis to buy
- Sold Hyflux due to high debts and operating expenses.
Stocks that will perform in the long run will likely start from the current position. It is because companies with good business model will follow them through for a long time.
- Less or no debts in their balance sheet - Allow them to earn pure profits and will slowly grow to a cash cow company
Good rewards in dividends in cash or shares
- Azeus Holding, SGX are 2 stocks that have minimal or no debts in their company
Consistent profit growth
- Banks (DBS, OCBC, UOB), MTQ Corp, Silverlake Axis