Equity Investing: A Clean Slate
Flickr image "Panel: Weighing The Impact Of Washington On Private Equity" by djevents
I’ve recently moved from an equity heavy and cash light portfolio to a relatively cash heavy and equity light portfolio due to a possible move into property investment. However, the recent run-up in mass market private property prices makes me feel that some of the units I’m considering are over-valued relative to possible downside on rents.
Thus, I’m now taking my time to scout for possible property investments and in the meantime parking most of my funds in Maybank iSavvy that is paying 0.75% per annum for balances exceeding $50k. In the meantime, I’m doing some quick speculative punts on SGX given the volatility in some counters.
Cleaning up
To arrive at this position, I had to incur some realised losses on investments made one to two years ago. This allowed me to free up capital and at the same time, I was fortunate that selling my SPC shares to PetrolChina allowed me to essentially break even, i.e. take out my capital with minimal realised losses. My year-to-date realised investment returns are 4.61% which beats my benchmark of 2 x risk-free returns (either treasury bills or fixed deposit rates, whichever is the higher).
With fixed deposits interest rates at 1% or even lower, 2x is about 2%. In fact, my returns of 4.61% beats CPF’s 4% for MSRA (medisave, special and retirement accounts) and 2.5% on CPF ordinary balances. So far, I’ve managed to outperform CPF in growing my own monies.
What I learnt from investing my own money since 2003 is that holding power is important. The ability to hold means that you are less pressured to sell in down markets and can ride out a certain degree of volatility in the market.
I also learnt about market cycles and the ebb and flow of markets intra-day. I used to be clueless about the sense of the market direction for the day. After dabbling and losing some tuition fees as well as making some windfall gains, I realised that you can spot certain trends. Of course, to make money on them requires patience (to generally buy when sentiment is bad) and courage to sell into rallies.
I’ve also learnt that there are many ways to achieve investment returns in the long-run. Most strategies involves lots of efforts and discipline which applies to anything worth-while in life. Passive investing is very difficult to achieve as most asset classes will go through cycles which appear to be happening faster with more regularity.
The Strategy is to beat your benchmark
In short, there is no good/bad strategy in investing. You either make or lose money, hence the ultimate key performance indicator is whether you make or lose money. Benchmark yourself all the time against risk-free returns (e.g. treasury bills or fixed deposits) and see how your risk taking has brought you.
I start to realise that there’s no right/wrong approach. Too often we become bogged down in the dogma of buy and hold for long-term or to do quick-in-out punts.
What matters is not the way you can obtain that investment return but how effective is it and if you can survive the market. Of course, we’re talking legal investments and not ponzi schemes which can make you as rich and as free as Madoff.
One has to know one’s limits to be able to invest within one’s means.
How has your investment strategies changed over time?
Share with Panzer in the comments section.
Be well and prosper.
You said: “since 2003 you are investing …” and “My year-to-date realised investment returns are 4.61%”
I am very sorry to ask. Did u ride your portfolio all the way up to 2007 and then ride it all the way down and exit?
You can ignore my curiousity. I have no ill intentions.
Dear createwealth 8888
I managed to make realised positive returns from 2003 to 2008 from my portfolio (which includes equities). Some of my positive returns were due to capital gains during the bull phase while others were dividends and interest (treasury bills and fixed deposits).
I also made realised losses along the way but fortunately this were modest relative to the capital gains and dividends so overall I managed to beat CPF rate of 2.5% ahead since 2003.
Most of the losses were mainly in Nov 2008 due to the subprime but I was lucky that I had some holding power, so I actually realised some of the losses only recently in July 2009 so net returns overall year-to-date are still +ve.
I know some people have strong views against market timing. My own belief is that so long as you can make money and not get wiped out in terms of capital, give the approach a try.
Hence, I don’t go into the “buy and hold” vs “market timing” argument. Both are equally valid depending on the context, i.e. skills/experience of the investor, capital you have, risk tolerance and the economic conditions of the day.
Be well and prosper.
Hi Panzer,
I think 1 question createwealth8888 may have been trying to ask is what is the CAGR of your returns over the 2003-2008 period? I have been faced with the same problem of trying to quantify my investment returns over the years, and using a simple average will not suffice as the value of your portfolio changes over time as you add and subtract from it. The proper way to measure it is to use the XIRR Function within MS Excel, but as I do not have it I am unable to determine my real-adjusted returns.
My current unrealized + realized gains are about 25% of my current cost of capital but for all I know, my CAGR since 2005 may have been -ve or even lower than inflation as I made many withdrawals and additions during this period.
But of course, being able to exit the market with some realized gains is still better than having realized losses. And for that I saulte you.
Cheers,
Musicwhiz
Hi musicwhiz
The ironic thing about being an accountant is that I realise it is at times better to be fuzzy and correct rather than exact and wrong.
I think if I compute inflation I will have much smaller returns (and some years even negative!) but overall, I use CPF and fixed deposits and treasury bills because they are the virtually “risk-free” equivalents.
I’m also too lazy to compute exactly the CAGR but my benchmarks are more approximate, i.e. pay off housing loan by xx years, pay off car loan by xx, achieve xx% of investible net-worth of $1m.
One thing I learnt about investing is that stick to one’s own game plan and to take responsibility for the outcome. That way, it doesn’t matter if people agree/disagree with you. Just do what one thinks is right (subject to laws of the land and morality) and take care of family and loved ones including oneself.
Be well and prosper.
[...] What I learnt from investing my own money since 2003 is that holding power is important. The ability to hold means that you are less pressured to sell in down markets and can ride out a certain degree of volatility in the market. Read more… [...]
Hi pg,
Property investing can be timed too
Just take a look at the charts. All the best in your property investment.
Dear LP
Yes, it can be timed as well!
Hi Panzer, sorry a bit off topic here. Could you send me an email to sgbluechip@gmail.com? I have an advertising company willing to place an advert on your blog. Fees will be paid upfront. Do let me know if you are keen
Hey panzer,
you got interesting posts on various finance topics.
I would like to exchange links with you
My blog address is http://www.beginningwithf.blogspot.com
It is a blog on personal finance, frugal living and tips to save unnecessary expenses.
Cheers
Dear Andre
Sure, I’ll put your your blog link in my links section.
Be well and prosper.
Hi Panzer,
How do you go about checking whether a unit is of a good price? I only know of the URA site.
I’m also interested in commercial properties after going to some talks. Are you also considering that?
What’s your opinion on arm-chair investing via REITs?
Thanks.
Hi Joe
There is no best way to do that. For me, I will check the URA website for last transacted price, I also will try to factor in the rental yield and scan newspapers to get a feel of what owners of similar units are asking for rental.
For commercial properties, they are typically on shorter leases of 30 years, not so sure about financing options, i.e. haven’t talked to banks yet on how much are they willing to loan.
I’ve tried investing in REITS. When property prices and rentals are going up, it’s all good. When the economy tanks, the valuations and yields go down, then it’s tough especially if REITS cannot secure funding.
Be well and prosper.
Panzer´s last blog ..Maybank iSavvy Time Deposit Rates