Tag Archive for: portfolio

Spencer Li

Is Your Portfolio Anti-Fragile? (Does it Fare Well During a Market Crash?)

does your portfolio fare well in crisis

In a bull market, everyone is a genius because it does not take any skill to get great returns.

However, the real test of your portfolio is during a market crash or crisis. How will it fare if the stock market drops 50%?

If your portfolio is anti-fragile, it will actually benefit from such market volatility, and give you opportunities to buy assets on discount.

Enjoy the video, and remember to “like” and “subscribe”!

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Spencer Li

How to Build a $1M Dollar Portfolio by 30 (The Practical Stuff)

monthly portfolio updates October 2016 1

This is the dream of many millennials, to build a million-dollar portfolio as soon as possible, so that they can live off the passive income, and focus on pursuing their dreams, interests or hobbies, without having to worry about money any more.

When I was in my 20s, that was my dream as well, which was why I read over 2000 books ranging from investing, trading, psychology, motivation, philosophy, biographies, businesses, digital marketing, finance, accounting, etc. And that was when I realised that most of wealth creation boiled down to 3 simple core principles.

 

1) Multiple sources of Cashflow

The first thing you need to get started is a solid base capital, so at the start if you do not have much capital, almost all your time and resources should be focused on generating as much cashflow as possible to build up your ammunition.

If you have a well paying job, then you can start saving aggressively, but to speed up the process, most people will seek to generate multiple sources of income or cashflow. Some examples include working a side job, starting an online business, etc.

For me, I decided to use forex trading, because it did not require much capital to start, and also because I did not have much spare time, and could only afford to spend 15-30 minutes a day. Now, it provides me a steady monthly cashflow, which allowed me to move on to step 2.

 

2) Timing your portfolio purchases

Once you have sufficient capital and consistent cashflow, the next step is to start building your long-term portfolio. Start by having a rough idea oh what your ideal portfolio is, and what kind of risk/return profile you are looking for. Look out for assets that have a good chance of capital appreciation, as well as passive returns in the form of dividends or rental yield. Over time, I tend to favour having more “passive income” type of investments.

Timing your portfolio purchases

Do not be in a hurry to buy everything at once. Watch and study the market cycles, and aim to buy stuff only when they are cheap or “undervalued”. This can be done easily by looking at the charts of any product over the past 50-100 years of history. There is no need to spend hours reading financial reports or analyst reports. Remember, our goal is to get the most out of our limited time.

 

3) Re-invest the passive income

As your portfolio grows, and you continue to add to it via your monthly cashflow contributions, the real kicker is when the effect of compounding kicks in.

The best way to do this is to also re-invest the passive income which you get from the portfolio itself, creating a snowball effect which will literally grow your portfolio exponentially.

Once you have assembled your ideal portfolio, all you need to do is to check on it once every 3 months or so, and do some rebalancing. In the meantime, you can pretty much enjoy the fruits of your labour, and focus on living your life instead of having to worry about money.

For me, this means travelling around the world (50+ countries to date!), and sharing my knowledge to inspire and help others do the same.

Now, are you ready to start building your own portfolio?

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Spencer Li

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

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Recently, during an interview, I was asked this question, to suggest a possible portfolio allocation for people 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 wild bets
  • 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 10-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 and startups 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.

GSCI

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. For non-Singaporeans, any pension/retirement scheme which offers a fixed payout would serve the same purpose.

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.

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Spencer Li

Why I am Planning to Liquidate my Full Portfolio of Singapore Stocks

straits times index sti 140517

 

It has been a while since my last update on the Singapore markets (as well as my SG portfolio holdings), largely because the market doesn’t move much, so I only check on them once in a while.

Interestingly, I noticed that the STI has had an impressive run, coming off a low of 25xx to break past the 3000 level in the past few months. However, is this move sustainable?

Full Portfolio of Singapore Stocks

Taking a closer look at this weekly chart which shows the historical prices over the last 20 years or so, one thing which stands out is that the market has been in a 7 YEAR sideways stagnation.

If we look back at the whole history of the index, this is somewhat unprecedented.

Which could explain why popularity in this market (as well as trading volumes) has been waning. In short, it does seem like a dying market.

Not to mention that during this same time period, the US stock markets have been steadily creeping up.

If we look at the most recent red shaded circle, that is where the current price is, and it seems to be running into massive headwinds. This means that the potential upside could be quite limited.

If we observe the large sideways range that prices have been moving in, the price is now at the top of the range. And we know that the best strategy in a range is to “buy low, sell high”, which means that the odds do not favour much more upside, unless there is some new strong positive price catalyst.

However, a cursory glance at recent news headlines seems to be painting a rather gloomy picture, with muted growth forecasts and ominous employment statistics. This tell me that downside catalysts are more likely that upside ones. In other words, there is more chance of a negative shock rather than a positive shock for prices.

In light of all these factors, I am planning to cash out most or all of my profits, and wait for more favourable odds to redeploy my capital. As a trader and investor, timing is always key.

Good luck, and trade wisely! 😀

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Spencer Li

Warren Buffett’s 7 Secrets to Dividend Investing

warren buffett

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.

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