Hi, I’m Ian.
I’m a stock investor who invest in both Malaysia and Singapore.
Presently, I’m fortunate to have built myself a money-making stock portfolio that pays me dividends upon dividends on a quarterly basis. If you would ask me, ‘What is the most important ingredient to building wealth in stocks?’ My reply would be: Education.
Education is the bridge that has brought me from knowing nuts about stocks to building real wealth from a stock portfolio, skipping many sleepless nights and needless heartaches. But, if you are reading this, you may ask:
‘Ian, it is great that you’ve made some money. But, my stock portfolio is deep in the red. What do I need to do?’
Good question. Personally, as I write, I’ve just finished a Live Webinar hosted by Victor Ch’ng, co-founder of the Fifth Person, one of Singapore’s leading & most-followed blogs on stock investments. Victor, together with Rusmin, one of his partners have a track record of turning a stock portfolio that was down by S$ 400,000 in the RED into S$ 2,300,000 in the BLACK.
So, I think Victor is one who knows what he is talking about.
In this article, I’ll list down 6 key takeaways from Victor’s webinar, hopefully, you will know what exactly you need to do to turnaround your portfolio.
#1: Common Traits of a Losing Portfolio
Victor has shared three common traits of a portfolio that lost money. They are:
- Have 50 – 70 stocks in a Portfolio.
- Most stocks have weak businesses and poor fundamentals.
- Most stocks were bought based on recommendations from friends, brokers, relatives … etc.
I think, it is helpful to reflect on why did you buy what you have bought. You may assess and compare how different your thoughts on stocks and investing are from ones who are profiting consistently. It will be a wisdom gained once you’ve realized the need to replace your mindset on stocks before moving on to turnaround your portfolio.
#2: Compound Winners, Not Losers …
Victor has briefly defined:
- Winning stocks are ones with strong business models that are able to generate recurring income.
- Stocks that are losers are those with weak business models that don’t generate recurring income.
Thus, from your portfolio, you need to identify which stocks are winners and which are losers. You should trim off losers from your portfolio as they aren’t capable of grow your wealth sustainably over the long-term.
#3: Always Invest in Good Companies
Victor has shared seven things to look at assess the fundamental strength of a company. Stocks that are winners would have the 7 traits:
- They have strong business models.
- They generate recurring income.
- They are market leaders in their industries.
- They have high Return on Equity (ROE).
- They have low debt-to-equity ratio (Gearing Ratio).
- They have strong cash flow management.
- They pay out high level of dividends consistently.
As investors, our job is to fill our portfolio with these winning stocks. But, it only makes sense if they are bought at reasonably low prices. This is because a good stock is only a good investment if we buy it at the right price which is when it is low, not high. Here, we can use several tools such as P/E Ratio and the calculation of intrinsic value to determine whether the intended stock is cheap or expensive.
#4: Be Diversified, but don’t overdo it.
Victor has shared the purpose of diversification. It is to reduce your exposure of the market risk of one stock. What is market risk? It is the potential losses arising from uncontrollable events such as politics, economics, weather, and even tragic accidents. So, what is the ideal composition of a winning portfolio?
Victor has shared their common traits:
- It has a minimum of 10 stocks to a maximum of 30 stocks. The most ideal is around 15 stocks.
- Why? This is because, we want to maximize our focus on stocks that are winners while reducing the exposure of its market risk.
- If I have 10 stocks, each stock in the portfolio has similar weightages. For instance, if I have S$ 100,000 to invest, I would allocate S$ 10,000 for each stock. It is still okay if the weightages of each stock is a little different. But, it is not okay if one or a few stocks have substantially higher weightage compared to others.
#5: Let Your Tree Grow
Many expect their stocks to fly once they have bought them. This may not be realistic. Why? This is because businesses do take time to grow and mature. I think, in many ways, stock investing is likened to planting a tree. A company that has a solid business model which puts in efforts to expand its sources of recurring income will be like a tree that yields more and more fruits over the long-term. This is why it’s best to invest in good companies, letting the magic of time work in your favour as you see your wealth grow over time.
#6: Crisis = Opportunity
In Mandarin Chinese, the word ‘Crisis’ is made up of two words: Danger and Opportunity.
This means, the best opportunities lies in ‘dangerous’ times. It works well for stock investors as the time to really invest in winning stocks is when there is a stock market crisis. Why? This is when winning stocks are offered at prices that are ridiculously low.
Now, I do not know when will the next crisis will come. But, suffice to say, I think it is prudent to keep some spare cash so that we have the means to go into the market to grab some winning stocks in a stock market crash.
If you want to have the full webinar recording hosted by Victor Ch’ng, please click the link below:
Stock 101 Quiz