My Investing Philosophy

Received my bonus! In addition, the stocks I owned (especially Super) have rallied greatly, causing quite a move in my portfolio.

If I exclude emergency funds, my allocation is currently around 30% equities, 70% cash. Is it too conservative? Perhaps.

At the same time, I am also extremely wary of the seemingly unstoppable bull market. Brian, one of my favourite bloggers, have noted this as well and sold off part of his Frasers stock. This makes it even harder for me to buy.

I realize now that I am really quite unhappy when I see the prices go up, even for stocks I own.

Am I mad? Aren't I "losing money"? No.

Let me put it this way. Let's say you like to eat Mcdonalds, and you're gonna eat it many many more times in your lifetime. Are you happier if the price of the burgers go up or down? Down of course!

The same actually applies to stock. If you are going to be a net-buyer of stock for the rest of your lifetime, you should be praying for it to go down, so that you can get more at cheaper prices.

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Then of course, the prerequisite is that the company you brought is a 'tennis ball' and not an 'egg'. A tennis ball always bounce back when it hits the floor. An egg simply shatters.

It might sounds weird, but I buy stock praying it will hit lower so that I can buy more. As of result of my investment philosophy, I have to keep a large cash allocation.

Now, what about selling?

Should I sell my FCT now that even Brian thinks it's heading into overvalued territory? I thought really hard about this.

How do I come up with a concrete plan that is predominately based on long term investment, while having the benefit of capitalizing on short term volatility when opportunity arises?

I thought about everything I have learned from the past year, and consolidate them into this.


My Investing Model

1. Buy Good Companies

This cannot be summarized easily, but it mainly got to do with these: Strong economic moats, strong balance sheet, positive free-cash flow, recurring revenue sources, stable and predictable dividends.

Do your homework during good times so you know what these companies are.


2. But Don't Overpay

Of course, the ideal case is buy them when they are undervalued, but this is not possible most of the time. The next best case is buy them for a fair value.

But NEVER overpay.

Easy to say, but extremely hard to attain. How to know the fair price? Do your homework, then add in a margin of safety. If you think $1 is fair, try to buy it for 80 cents. Never pay $1.20 for it.


3. Always Nibble, Always Have More Bullets. (Buying Down)

NEVER be greedy and go all in. Even if you have 90% win rate, one wrong move and you will lose everything. Always nibble, nibble, nibble.

If you buy $1000, make sure you have $5000 behind. What is lower can go lower. You can never predict how low the price can go.

If it goes lower, nibble down. If it goes even lower, start biting. Down EVEN MORE? Bring out the artillery.

*Make sure it is a good company that you are confident in, and never put everything into a single basket.


4. Option To Sell If It Becomes Overvalued

Again, this is a controversial step. How do you know it's overvalued?

You buy at $1 and it goes to $1.20. It may head higher to $1.50, $2.

If you sell and it keeps going up, it may be a long time before you can get it back into your portfolio again.

The bottom line though, is that it is never bad to sell for a profit. This is an option that you can execute if you really think it's overvalued, and put your money in another company that you can nibble down on.

Quote from Brian: "Even though the objective is to focus on fundamentals for the long term, it would be pretty foolish not to consider selling at some point should the market over react by providing opportunities for investors to take profits."

Otherwise, hold on, keep calm and collect dividends!

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As you can see, my investing model is simple.

Keep loads of cash and nibble on good companies at reasonable prices. If it goes down, you get to accumulate more. If it goes up, you have the option to lock in profits.

This is the essence of how I invest. No speculating on short-term market movements. No risky leverage.


Finally, let me end this post with some advice from one of my favourite blogger, the dividend god AK:

a) Make sure that you are always prudent with your personal finance matters.
b) Get the necessary insurance coverage, but don't overpay. 
c) Know what are needs and wants. Delay gratification. 
d) Go for low hanging fruits.
e) Invest in income producing assets to supplement your earned income.
f) Be an opportunist and buy more when assets are on sale. 
g) To do that, have a war chest ready always.