2004 - 2015 Returns
But first, I want to put the performance of my stock portfolio below, as it helps to illustrate my thoughts subsequently.
| % Returns | STI (Excl Dividends) | Remarks | |
| 2004 | 6% | ||
| 2005 | 35% |
Returns/Declines boosted with slight leverage.
2008: Great Recession | |
| 2006 | 130% | ||
| 2007 | 46% | 15% | |
| 2008 | -70% | -49% | |
| 2009 | 147% | 64% | |
| 2010 | 78% | 10% | |
| 2011 | -46% | -17% | Declines in S-chips and excessive concentration into 5-6 stocks |
| 2012 | 25% | 21% | |
| 2013 | 15% | -1% | Diversified into 19 stocks |
| 2014 | 8% | 6% | |
| 2015 | 4% | -14% | |
| 2004 - 15 returns (IRR) | 15% |
Thought 1: Leverage is a double-edged sword
I used some leverage (around 10 - 20% of my portfolio) in the second half of 2000s, as I feel that the leverage can boost my returns. In addition, my total portfolio amount is small. If I lost the borrowed sum in investing, I can still returned the borrowed amount through my salary.
The leverage are monies borrowed from my parents and siblings at 5% interest.
The leverage also boosted my returns and enlarged my losses during the 2008 Great Recession. In 2010, I stop the leverage and returned the borrowed amount to my parents and siblings, as I can always increase the size of my stock portfolio via my savings.
Thought 2: Concentration is also a double-edged sword
Concentration or having a portfolio comprising a few stocks can boost the returns when your stock double. Concentration also increase the losses when your stock sank by half.
In 2011, my portfolio holds less than 8 stocks and a few are S-chips. Then, the S-chips declined severely, and the market in general is not good. My portfolio halved in 2011. One of my stock (Hongwei) went delisted due to fraud.
I have learnt from the 2011 losses that I should lower the concentration in my portfolio.
Since then, I have diversified to around 20 stocks and limit the stock's maximum proportion to around 15-20% of my portfolio. This reduce the possibility of large portfolio losses if a stock tanked suddenly due to some events (e.g. accounting fraud).
Of course, having more stocks in my portfolio may lower the probability of large returns. For example, if a stock is only 5% of your portfolio and the stock double, your portfolio only increase by 5%. Nonetheless, this is a trade-off that I am happy to make to reduce the chances of large portfolio losses.
Thought 3: Losses make me more risk averse; Winners make me more risk loving
I become very risk averse during the depths of Great Recession in early 2009 and in end 2011, after losing a large amount of money. That is, I tend to choose safer stocks after large losses.
I also become more risk loving and prefer more risky stocks in late 2010 after experiencing large gains. The risk loving behaviour may be a factor of the huge draw downs in 2011.
I doubt that I can control my risk preference very much after large losses or gains. After all, I am human. Nonetheless, the diversification of my portfolio should help to mitigate the effect of risk loving behaviour, if I have large gains in future.
Thought 4: My investing style must suit me/ My investing style changes
Recently, I came upon the Thumbtack Investor (TTI) blog. TTI is a deep value and concentrated investor. He emphasised that deep value investing requires lots of hard work, and it would take months for him to analysis a stock and deciding to buy it.
Well, TTI's investing style will not suit me. Because I am lazy. I don't study a stock for days before buying. If I examine the valuation and fundamentals of the stock for a few hours, I will buy the stock if I like the valuation and fundamentals. I may study the stock after my initial position. My total time spent on a stock will not be more than 8 hours, I guess. As I do not spend a lot of time studying the stock, I know that I will missed out certain things. To compensate for this, I tend to cut losses and sell the stock when the reported results goes against my expectations.
Over the years, I have tried out other style of investing. For example, I tried technical investing but it don't make sense to me. I tried day trading once and it makes my heart beat too fast for my liking.
Also, my investing style changes over time. Prior to 2012, I tend to buy stocks with very low PE ratio (hence the S-chips). In 2011 - 2014, I buy more stocks with low P/B ratio (usually property stocks). This year, I buy stocks with GAPP (Growth at Reasonable Price) characteristics.
Dividend investing or having a stock portfolio for their dividends never quite get to me. I can understand why a person wants to have a stock portfolio with high dividend yield for the passive income. However, over the years, dividend yield is not an important criteria in my stock selection. Well, except Reits, in which dividend yield becomes an important criteria in my selection. (Reits are less than 5% of my total portfolio now, as I think that the higher US interest rate will affect Reits.)
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