Posts

Interview: If You Had $250,000, How Would You Allocate it?

Recently, during an interview, I was asked this question, to suggest a possible portfolio allocation for people (Singaporeans) in their early 30s, with $250k of investible cash to start with. Here is my answer in full:

If you only have $250k to start with, I would suggest a diversified approach of various asset classses to maximise returns.:

  • 25% allocated to cash (war chest)
  • 10% to cryptocurrencies
  • 20% to trading account
  • 20% to commodities
  • 20% to businesses, startups, angel investments
  • 5% to stocks, REITs, ETFs

Currently, the bulk of the holdings is in cash, since the market is pretty “risk-on” at the moment with much political and economic uncertainty about trade wars and real wars. Hence, I only included minimal stock holdings, as the stock markets (S&P 500)are at 8-9 year highs, so I will wait to buy in at a lower price should the opportunity arise.

One important factor is the 20% allocation to trading account, as this generate monthly cashflow from stocks/forex trading to continue growing the total portfolio size aggressively, which can then be allocated to other asset classes within the portfolio.

10% to cryptocurrencies is considered a “wild bet” which could be a zero or hero; lastly 20% to businesses is for people who have some prior experience to invest directly in businesses, or start their own. Personally, my portfolio includes several businesses, including a cafe and pub.

I have allocated 20% to commodities, as commodities are likely at their cycle low. The GSCI (Goldman Sachs Commodity Index) is one of the main benchmark for commodity prices, and the (GSCI/S&P 500) is used to measure the prices of commodities relative to stock prices. Currently, this measure is at a 50-year low, which suggests cheap commodities as a potential investment.

I have excluded real estate from this sample portfolio, as I do not include “own stay” property as an investment asset, and $250k is too small for any major property investment. For my own portfolio, i have invested in several properties as I feel that the Singapore property market will continue to rise for the next 5-10 years.

I have also excluded fixed income, as for Singaporeans, the CPF (SA account at 4%) is pretty much similar to a “risk-free” high-yield bond, hence it serves well as the fixed income component of the portfolio. For my own portfolio, i have hit the minimum sum, which will provide a good safety net for retirement.

I hope this has provided you a good template to start building your portfolio, but do keep in mind that ideally you should be looking to rebalance your portfolio every 1-3 months.

The Past 6 Years Summarized in One Chart – Are We Headed for Deflation?

market overview 221115 synapse trading

Since the post-2007 crash recovery starting in 2009, how have the markets fared?

Stocks, represented by the S&P 500, have steadily climbed, gaining an impressive 130% over the 6+ years.

Commodities, represented by oil, silver and gold, did not fare so well.

Oil peaked in the first half of 2011, consolidated for about 3 years, then made new lows in 2014.

Silver and Gold peaked in late 2011, then steadily declined all the way till today, giving up almost all its gains since 2009.

As the Fed gets ready to raise the interest rates, this is likely to give a boost to the US dollar, which will further suppress commodity prices. For oil, this is especially bad, since there is already an oversupply forecasted for 2016.

A higher interest rate will also bring down bond prices, ending the 30-year bull trend, and in months to come, act as a drag on stock prices. This means that the stock market is a ticking time bomb.

If all these happens, we will have a scenario with:

  • Bullish US dollar
  • Bearish oil, gold, silver, commodities
  • Bearish bond prices
  • Bearish stock prices
  • Bearish economy?

That would be a pretty gloomy deflation scenario. 🙁

What is my current portfolio strategy?

Stay tuned for my monthly portfolio update (November 2015) and current portfolio strategy at the end of this month!
Subscribe for our mailing list to receive it in your mailbox! 😀
http://synapsetrading.com/resources/the-7-best-kept-secrets-of-professional-traders/

Warren Buffett’s 7 Secrets to Dividend Investing Revealed

This article will show you the seven dividend-investing secrets that Buffett uses to grow his wealth consistently. Their findings are based on his spoken and written statements, as well as his holdings.

warren buffett

 

1. Look for Businesses with Long Corporate Histories

Companies with long histories offer investors fewer surprises. These businesses know exactly what they do, and they do it well. Very few businesses continue to be successful for decades. As technology progresses, industries change. Consumer tastes change as well. For a business to thrive for such long periods of time it must either continuously reinvent itself, or exist in an industry that changes slowly.

The advantage of investing in businesses with long corporate histories is that they are more likely to continue generating cash flows going forward. The slower an industry changes, and the longer a business has been around, the more likely that business has a strong competitive advantage that will survive far into the future. Investing in businesses with long histories is a conservative approach to investing. Warren Buffett looks for much more than just a few years of success before he is confident a business truly has staying power and a lasting competitive advantage.

2. Look for Businesses with Strong Competitive Advantages

Buffett looks for businesses with strong, durable competitive advantages. To do well in stocks, you must think like a business owner. As a business owner, you would want your business to be able to beat the competition. More importantly, you’d want something that prevented the competition from ever being able to match you. That’s what a strong and durable competitive advantage offers.

Finding businesses with a competitive advantage that lasts for decades is a much more difficult task. There are few businesses that can reliably sustain a competitive advantage year-after-year. The few businesses that can enjoy above-industry-average returns on capital which can be reinvested to spur growth or returned to shareholders.

3. Look for Undervalued Businesses

To find value in the stock market, one often has to look at the most “beat down” and “unloved” stocks. The most glamorous high-flying growth stocks are not where to look to find value.

There are several ways to find value in high-quality dividend stocks. Stocks with low price-to-earnings ratios are a good place to look for value. Businesses that have suffered from negative one-time events that do not threaten the continuity of the business is another great place to look.

4. Keep a Focused Portfolio

The higher your conviction in any one stock, the larger your portion of your portfolio you should allocate to this stock. If you are very confident that a stock is undervalued, the business has a strong competitive advantage, growth is likely to persist for the long run, and management is shareholder friendly, you should naturally invest more than you would in only a mediocre opportunity.

The advantage of keeping a portfolio of 12-to-20 positions is simple: You can invest in your best ideas, which have a higher probability of stellar performance while still getting much of the benefits of diversification. Owning a portfolio with hundreds of stocks in it virtually guarantees mediocre results.

5. Invest for the Long Run

Investing in businesses for long periods of time has several advantages. First, it allows truly exceptional businesses to compound your wealth without having to do anything else.

Holding stocks for long periods has another advantage. Rarely buying and selling stocks greatly reduces portfolio turnover. Low portfolio turnover means lower frictional costs like brokerage transaction costs, slippage, etc. The lower you keep your investment related costs, the more money you have to actually invest. Holding for long periods of time allows your money to compound in your best ideas, is tax efficient, and reduces investment related costs; a win-win-win situation for individual investors.

6. Look for Shareholder Friendly Management

From the perspective of a shareholder, an excellent management team is one that creates real value for shareholders. The best managers will repurchase shares when stock prices fall and abstain when prices rise. If the business does not have great investment opportunities to reinvest corporate profits, the management will pay out excess cash flows as dividends to shareholders.

Analyzing the moves a company’s managers make is a good way to understand their motivations. As a general rule, businesses with long dividend histories and share repurchases are shareholder friendly and make good investments. Finding the truly exceptional manager — like the next Buffett — is very difficult. But looking at the moves management has made is the first step.

7. Keep Things Simple

Even though Buffett is an investing genius, he always looks for simplicity. When you think of complicated businesses and investment plans like Enron or Long Term Capital Management, the results can be devastating to your portfolio. It is far better to invest in easy-to-understand high-quality businesses within your “circle of competence.”

Your circle of competence is the area of the market you know best. If you are a doctor and regularly deal with a variety of health-care companies, you may be well-equipped to identify and invest in the highest quality health-care businesses. Most people are familiar with a variety of consumer goods products. Analyzing businesses with products that you are familiar with greatly reduces your risk of making a foolhardy investment. Don’t invest because everyone else is doing it — invest because you understand why a company has been successful, and will likely be successful for decades.

Which Stocks Are Cheap to Buy & Hold Now? (Synapse Stock Screener Results!)

This weekend, I decided to run a simple scan using the Synapse Stock Screener to see whether there were any good buying opportunities in the market. I was looking for counters that had a 30-50% potential upside in 3-12 months, so I decided to go bargain-hunting in the Commodity and Oil & Gas sector, since many of these counters are near their lows.

commodity counters 020515

I filtered out my watchlist by ranking the counters according to their one-year performance, and I have circled those which have corrected significantly over the past year. The following charts will more clearly illustrate what I mean.

 

5dn 030515 ezra

SGX Singapore Stocks | Ezra Holdings (5DN)

n21 020515 noble group

SGX Singapore Stocks | Noble Group (N21)

eb5 020515 first resources

SGX Singapore Stocks | First Resources (EB5)

 

This coming Wednesday, I will be having another seminar to share my trading secrets, and I will also be touching more on these counters. If you are keen to start making your first pot of Gold from stock investing and trading, reserve your seat to join us for this exclusive event! (20 free seats for early bird registration)
Check availability: http://synapsetrading.com/events/training-workshops/

See you there! 😀