Investing

My investment journey thus far

Having shared some of the considerations before investing in my previous post, I will be sharing my investment journey thus far for this post. I will highlight what got me to start investing, the mistakes that I made and my current investing strategy and mindset. By doing so, I hope that you would get some tidbits out of my own experience and avoid the mistakes I made.

So… before this post gets too long again, let’s dive right into it.

Disclaimer: This post should not be seen as a recommendation to purchase any forms of investment instrument. One’s risk appetite and financial circumstances should be considered before making any forms of investment. In addition, research should also be done before making investment decisions. Therefore, I take no responsibility for future profits or losses should you decide to mimic my investment journey.

My mindset about money

Like most Singaporeans, I came from a middle-class family. My mum worked a regular 9 to 6 office job while my dad was largely unemployed as he took care of me and my siblings. Since young, I was taught to just study hard, get good grades (though I largely failed at this), find a good job in the future, save money and don’t overspend. Thus, my mindset when it comes to wealth was just to have a job and save for the future. To be fair, it is great advice to accumulate savings and get a steady inflow of income. But, what happens after we have accumulated a considerable amount of savings? Do we just leave our savings in banks to earn a 0.05% interest per year? It was exactly this thought that made me think about doing more with my savings.

Behold investing…or was it?

I remembered first starting to think about investing while I was still studying for my Diploma. Back then, I did not know much about investing and only had fleeting knowledge about stocks. Whatever knowledge I had was from observing my dad “invest” using Teletext while listening to the news for the daily top gainers and losers of the stock market. Although he did not tell me much, I learnt that my dad generally lost money through the way he invested.

Thank goodness for online brokers nowadays

Seeing how money can be so easily lost in the stock market, I thus had the mindset that investing in stocks was very risky (a huge common misperception). This resulted in my risk-averse attitude from the get-go and only thought of putting money in investments that guaranteed my initial capital. As a result, insurance endowment plans thus seemed like the perfect ‘investment’ for me.

I mean what’s not to like? My capital is guaranteed and extra money is earned upon maturity of the plan. I was also lured by the supposedly high non-guarantee portion (5.25%) that was highlighted by my insurance agent. Thus, I used the savings that I had and purchased a 24-year endowment plan, paying an annual premium of around $3.2k for 12 years. By the way, I’m still paying for it now, thankfully it’s left with just 4 years.

So there I was, thinking that I was on the path of earning extra income by ‘investing’ my money through the endowment plan. Now before I get intense hate from insurance agents out there, I am not saying that endowment plans are bad or useless investments. Rather, the opportunity cost of putting money in endowment plans is too much as compared to other forms of investment (I will touch more about this in future posts).

The book that changed it all

When it comes to investing ‘greats’, the names of Benjamin Graham, Warren Buffet or Charlie Munger are often mentioned. Some of their books have also been deemed as ‘must reads’ by the investing community. However, the book that changed my perception about investing has a rather local flavour to it.

I remembered buying the book What Your School Never Taught You About Money from the Popular bookstore. To be frank, I did not buy the book to learn more about investing but rather because the title was interesting (and also because it was a national bestseller?). However, what I learnt from the book totally blew my mind. It opened my eyes to the possibilities of other investments besides just insurance endowment plans. Furthermore, the book made it seemed as if investing was not that difficult (or risky) after all. In particular, the chapter about Exchange Traded Funds (ETFs) was very interesting for me.

My investing kickstarter

For those unfamiliar with what ETFs are, they are basically funds that track the performance of a basket of stocks. For instance, the STI ETF tracks the Straits Times Index, which comprises of the largest 30 stocks on the Singapore exchange. Thus, your returns from the ETF will largely mimic the average returns of all the stocks in the ETF.

While ETFs are commonly deemed as lower risk as compared to purchasing individual stocks, this may not always be true. Some ETFs track a niche sector or a number of stocks from a particular industry, which can thus be riskier and more volatile in nature. As such, before purchasing any ETFs always know what the underlying holdings are.

With my risk-averse attitude and knowledge about ETFs from the book, I made my first investment in the stock market by buying the SPDR STI ETF. In addition, I also bought two Singapore Government bonds as a way to reduce my investment risk. With that, I thus took baby steps toward creating my own investment portfolio.

The desire for higher returns

With my portfolio consisting of Singapore government bonds and the STI ETF, the dividend returns were around a comfortable 3% annually. It was at this juncture that I succumbed to my human instincts and thought of increasing the dividend return. After all, who does not want more money right? I thus turned my attention to dividend stocks and REITs due to their higher dividend yields.

Misplaced trust in big companies

We have all heard the saying “Nothing would go wrong by buying big companies”. This statement cannot be further from the truth. One only has to look at the examples of Singtel, Starhub and Dairy Farm to see that their share prices have been declining over the years. However, like most newbie investors, I had the impression that these companies were too big to fail. As such, the first three stocks that I bought were Singtel, Asian Pay TV Trust (APTT) and Manulife US REIT.

The reasons that I bought these stocks at that time were simple. I bought Singtel thinking it would do well as it was a reputable brand. It was the same for Manulife US REIT as I felt that the REIT would not fail due to the Manulife brand. For APTT, I bought the stock as Temasek was one of their majority shareholders. Hence I thought that Temasek should know what they are doing by investing in that stock. Coincidentally, all three stocks also had dividend yields ranging from 5-8%.

After my purchase of the three stocks, everything went quite smoothly despite small paper losses. The dividends gained were quite substantial and thus I did not think much about the paper losses. Furthermore, I also had considerable paper gains as the STI ETF was also performing pretty well. Overall my portfolio was sitting on a small paper gain. Hence, there I was thinking that this isn’t too bad after all. However as the saying goes, that was just the calm before the storm. I would soon be dealt with my first dose of realism from the stock market.

Experiencing loss in the market

From time to time, the stock market often experiences periods of correction, where there would be a decline of at least 10%. I experienced my first market correction in February 2018 when the STI dropped more than 10% from its peak. As I saw my paper gains diminishing day by day, I thus sold all my STI ETF holdings to lock in any gains thus far. This was a mistake as the market eventually recovered back to its peak in around three months since the correction. Thus if I had been patient, I would have gained much more by just waiting out the market. Furthermore, it also led me to repurchase the STI ETF at a much higher price as compared to when I first bought it. Well, I guess that’s why patience has its rewards right?

Besides just the market correction in early 2018, 2018 was also the year when I had my first significant loss. It came from the announcement that APTT would be cutting their dividends. This caused the price of APTT to plunge more than 50%, from 33 cents to 15cents. This served as a wake-up call for me. I realised that I need to start looking at the fundamentals of the companies that I would be buying. Eventually, I took the loss and sold all my APTT shares for around 17 cents each.

In addition to the tanking of APPT’s share price, Singtel’s share price was also declining in part due to worsening fundamentals. So there I was with my first two stock investments being loss-making instead of appreciating in value.

It definitely felt like this with my losses

Diversification and research

Instead of giving up on investing in the stock market due to my losses, I learnt that I needed to better research stocks before purchasing them. To be fair, the decline in prices of both Singtel and APTT could have been foreseen from their financial performance over the years. Now you might be wondering how did my investment in Manulife US REIT fare? Well, it was a small success story as I eventually sold it for a 10% profit excluding dividends. It was also through my research that I sold it as I did not like what I saw in its financial performance.

In addition to research, I also started to diversify my portfolio. I mainly did so by assigning percentages to whatever investments that I bought. For instance, stocks or ETFs that I am generally confident about would take up around 6% of my total portfolio. On the other hand, riskier stocks based on either fundamentals or geography would at most take up 3%. Besides just individual investments, I also diversified via asset classes such as bonds, stocks, REITs or gold. By doing so, I was thus able to spread out my risk and also reduce potential impacts on my portfolio should my assessment be wrong. Of course, this would not be entirely foolproof as there would be times where all asset classes would dip, such as the current bear market due to the Covid-19 situation.

Moving forth, I would aim for my portfolio to deliver an annual dividend return of at least 4%. This would mainly be done by purchasing dividend stocks with recurring business models and REITs. I am also looking at adding overseas stocks to make my portfolio more ‘global’ in nature. In my opinion, the size of the Singapore market is just too small as compared to markets such as China and the USA. As such, by limiting myself to just local stocks, I am denying myself the opportunity to partake in the growth of dominant industry players (think Amazon, Alibaba, Google etc).

Lessons learnt

So there you have it, an overview of my investment journey thus far. To sum it up, I have learnt four valuable lessons from it.

Investing is very much a personal marathon

As seen, my own investment journey started with generally low-risk products. As everyone’s risk appetite is different, always start off with something you are comfortable with. Doing so provides a sort of foundation for you to build on and eventually move to ‘riskier’ forms of investments. Keep in mind that how you start off will not matter in the long run. What matters is starting and sustaining throughout. And of course, making sure that your investment returns beat the inflation rate.

With that said, only you are ultimately responsible and answerable for your own investment choices. Not your friend, your family members, the stock market or even the government. Hence, do not seek to compare or try to outdo another individual. Investing is not a competition to see who has higher returns, but rather a personal journey which you constantly need to adapt, learn and improve from the mistakes that were made. At the end of the day, always be mindful of your reasons for investing in the first place, whether it is to beat inflation, retire early or have a comfortable retirement.

Research, research and more research

My purchase of APTT and the subsequent crash of its share price highlights the perils of not doing proper research. Before purchasing any stock, always check the fundamentals of the company and the associated risks of investing in it. Annual reports and financial statements are your best friends when it comes to evaluating companies. Besides the financials of the company, be aware of possible headwinds to the company, whether it be from potential competitors, the wider economic outlook or industry disruptions. Lastly, also take note of the intrinsic value of a stock. Doing so would reduce the likelihood of overpaying for a particular stock.

Now you might be thinking; Wow! Investing in individual stocks seems to be so troublesome, guess I will just stick to ETFs. Well…bummer you have to do some research too for ETFs (although I admit it isn’t as much as individual stocks). For ETFs, you need to know what the underlying constituents are and how much of the ETF they take up. For instance, the three local banks (DBS, OCBC and UOB) take-up a total of 38.37% of the entire STI ETF. Are you comfortable with such an allocation? Additionally, for ETFs, be aware of how much fees are incurred and also the type of investing method that the ETF manager does. This can ultimately affect your investment returns.

Invest for the long term

Due to the nature of the stock market, there will often be periods of good times and bad times. Having a long term view decreases the likelihood of panic selling during a market downturn. As seen from my own experience, if I had just held on to the STI ETF during the market correction in 2018 instead of selling, I would have not needed to repurchase it at a higher price down the road and would have also gained dividends while holding on to it.

Besides just waiting out during a downturn, a long term view is also needed for a stock to fulfil its ‘potential’. I remembered when I first purchased Manulife REIT, I bought it at a price of USD 0.97 (stupid me). The stock then went through periods of volatility due to several rights issue and uncertainties regarding the US tax regulations, falling to a low of 0.79 at one point. However, I was pretty bullish about the stock and purchased more shares at its low point. This allowed me to averaged down my purchase price and thus reduced my risk. The share price started recovering and came to a point where I felt it was overvalued. Thus, I eventually sold the stock at 1.05, close to three years after first purchasing it.

Through my own experience, I have seen how a long term view is crucial to making gains from the stock market. Additionally, it also reduces the chances of succumbing to our own feelings especially during the downtimes. By adopting a long term view, I have learnt to be patient with the stock market and not expect immediate returns or jump the gun when things do not go well. After all, the stock market would eventually recover and I just need the patience to see it through.

Always buy incrementally at a discount

I think the last lesson that I have learnt especially in the current bear market is the need to stagger my purchases even if the stock is on a ‘discount’.

Take my purchase of DBS recently as an example, I first purchased it at $24.60 as I felt it was undervalued based on its PE ratio. Take note this was before the Fed’s announcement of the rate being slashed to near 0 basis point. If I had gone straight in and purchased close to 6% of my portfolio allocation, I would have bought around 300 shares. This would then leave me little room to manoeuvre should the price drop even more. And drop even more it did, as the price dropped to a low of $16.65 before recovering to its current $19.14 (as of 27 March).

Instead what I did was to purchase 100 shares each at the price of $24.37, $21.58 and $17.74 during periods of the decline. Doing so allowed me to average my total share price to $21.23. Yes, I know it is still an overall loss but it is much lower as compared to if I had purchased 300 shares at $24.37. Besides, I am investing for the long term so I would not be realizing the paper loss any time soon.

As seen, buying incrementally during a bear market gives us room to manoeuvre. Should the market recover, you would profit from it. Should the market decline more, you can just purchase more shares. Do keep in mind that you would need to decide when to inject your funds in. Although that will be a topic for another day.

Conclusion

So there it is my investment journey thus far and the lessons I have gained from it. I do apologise for the number of words (once again?). I will try to reduce my word length in future posts. In the meantime, stay invested and look for discounts in the current bear market. Soldier on and know that the market would eventually recover.

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