Core and Satellite Portfolios - Have you truly figured out your portfolios?

I'm sure many of you would have heard of having a core portfolio whereby you utilise that portfolio for your investments. And probably a satellite portfolio for alpha generation and the like. Having various portfolios help both manage risks and also set priorities.

How I have structured my assets is a little different yet similar all-in-one. I have 3 main asset portfolios: 1. Retirement, 2. Housing and 3. Cash

1. Retirement Portfolio
- This is my bare minimum portfolio and is something that will enable me to lead a fuss-free lifestyle when I retire. You can call it the survival portfolio. I can afford to probably lose my pants off from most of my investments and yet lead a frugal yet viable retirement. This portfolio obviously consists of lower risk investments and it includes both the CPF OA (portion that has been kept aside and not used for housing) & SA, SRS contributions (which are all invested in a IG bond fund) and potential cash values of all my insurance policies.
- The current overall value of this portfolio stands at a healthy five figure amount and I project to have at least $300,000 in this 'pot' when I hit my target retirement age. Of course the fact that CPF monies can only be withdrawn at certain ages, etc have been taken into account.
- So basically this is a portfolio that can't be messed around and all investments per se have to be of quality and of lower risk. It is a survival portfolio and is used both as a hedge and for pure retirement purposes.

2. Housing
- This portion is self-explanatory. However, I will be upgrading my place at the end of the year but buying a property that doesn't stretch my mortgage obligations. I believe in spreading my eggs and I'm not as versed or excited in property as perhaps I should be. So this is purely having a roof over my head and I aim to clear all obligations way before I embark on my full time investing journey.

3. Cash
- This is where I allow myself all the fun and freedom to pursue my true passion and expertise; which is investing in companies. What gives me added assurance and flexibility to invest is due to the fact that both of the above portfolios have been well taken care of. I then am not bound by fears of inadequate retirement planning or not having a roof over my head.
- The above being said, my focus is still mainly on being invested in quality businesses and having growing dividends that are compounded over time. Just staying the course and being disciplined and mature. Thus, I remain fervent fans of Singtel, Jardine, Raffles, Comfortdelgro, Sembcorp, OCBC, companies which to me present excellent opportunities to participate in their ongoing growth and businesses.
- The finishing line is really clear and it is when I have both retirement and housing portfolios pretty secured and the cash portfolio is generating an income that meets my monthly expenditures. This would also mean to me, truly transitioning to being a full-time investor. However, what probably separates the successful and the rest is planning, the stomach to tolerate volatility, lots and lots of discipline and perhaps most important just enjoying the process. I have indeed been enjoying absolutely every minute of it and I obtain loads of joy and satisfaction when writing my blogs and discussing with fellow investors over time.

Hope the small snippets of sharing above has helped paint a picture of how you might want to construct your overall portfolio. Remember; if you fail to plan, you plan to fail. Have a great work week ahead! *and back to my books.

Signing Off
Transitioning Stock Investor

Keeping the Focus - Good to Read

With the markets having gone through major gyrations over the last couple of weeks, it is easy to panic and lose the initial focus that we had for our portfolios.

Stepping back from all the noise in the market, I asked myself again what was my initial rationale both for starting this blog and for that matter, having a stock portfolio? The answer came surprisingly easily.

I wanted to transit to being a full-time investor with a high quality and good yielding investment portfolio that could generate income and returns and gradually replace my active income from work. This would mean that my portfolio should only consist of quality and slightly larger cap biased companies that show an ability to be able to generate solid earnings over time and are well governed. It IS as simple as that, really.

I was tempted at certain points to cut some of the positions in my portfolio and especially at the heights of the crisis whereby the loss on my portfolio escalated. And I have to share that the recent rebounds seen may be signs of a bear trap, something that I am increasingly hearing from many fellow industry professionals.

However, something inside of me has changed. Somehow or rather my gut keeps on telling me this: If your investment aint broken, why sell it? I also remember the wise words of Warren Buffet when asked when is a good time to sell a stock and he replied: "Never".

I am now instead increasing my focus on higher dividend yield stocks within my portfolio to add on, in order to increase the yield stability + further solidify my new found investment maturity. Where I used to flight easily, everything feels much more controlled now and I now recall again why I started my portfolio in the first place: To be a full-time investor. And to be that, it takes both a strong mind and solid paradigm, traits which I am determined to reinforce.

And I sincerely hope that this recent market turmoil has similarly helped unveil something positive for you too.

Sharing some of my stock ideas at the moment:

Stock ideas within my portfolio:
Buy: Singtel, Jardine Matheson Hlgs, Sembcorp Ind.
Sell: None.

Nothing too fanciful, but I'm starting to have an increased focus on slightly overall higher dividend yields on the portfolio. The recent rise in oil prices which is something that I have been projecting for quite some time will also help influence some of my stock picking decisions: cue Sembcorp.

Signing Off
Transitioning Stock Investor

How Has Your Portfolio fared in this market?

I just had this interesting thought that crossed my mind. How much have your portfolios fallen during this current market downturn? 5%? 10%? 20%? Or more?

I just checked and mine has fallen 12% since today. Honestly speaking although that kinda sucks I'm pretty glad that my portfolio has held up rather well thus far.

So share with me, how much has your portfolio been hit so far? And are you happy or concerned on how it has stood up so far? I really would like to know.

Brace, Brace and be Brave

Now as the markets tank and I forsee more turmoil to come, it raises many serious questions for all of us investors.

- Is my portfolio as well diversified as it should have been? (Albeit everything is getting hit hard now)
- Does my portfolio contain solid and quality companies that will weather the storm well?
- Have I learnt enough lessons from previous market downturns and applied it well today?
- Does my investment philosophy stand well even in the current market environment? Do I look to buy more when quality positions in my portfolio become more cheap OR do I panic and flee?
- Do I have enough cash reserves right now to take advantage of market opportunities?

You see, when everything goes up and smoothly, everything is hunky dory. Investing is easy. However, it is during times like this that expose those with vulnerable portfolios that may have also been pumped up with margin. It also unveils those investors who are fundamentally strong and have a clear focus on what to do with their portfolio. And the best thing to do now I feel is to:

BRACE, BRACE BUT ALSO STAY BRAVE.

If enough of the right principles have been applied, there is no need to panic nor avoid looking at your portfolio. This is because investing is a long term journey and as long as you have set the fundamentals right, your portfolio should withstand shocks to the system be it big or small. Don't believe me? Then have a read of many other stock blog writers and see how many are either panicking or whining and the few that stand brave. Also, how many supposed smart alecs with fanciful trading strategies or flowery investment themes, were proven wrong again by the market.

As I shared previously, keep calm and invest on. Only difference for now is, you gotta BRACE BRACE and BE BRAVE too.

Signing Off
Transitioning Stock Investor

Earnings Season - Portfolio Update

Hi all, it's been a week since I last blogged as I was away on holiday in HK and what a hot holiday it was as the temperatures there just were sky high.

Nonetheless, as I was in HK I still kept a close watch on the markets in general. It was earnings reporting season for a host of companies in Singapore, which included names like Comfortdelgro, Singtel, Sembcorp Industries, Jardine Matheson Holdings. Of these names all reported solid earnings except Jardine which saw a firm-wide knock on the profits of its businesses.

I would be expecting a bumper crop of dividends for Sept of around $500 plus in which they will be entirely reinvested in their existing holdings.

What we also saw recently was a massive sell-down of many stocks mainly due to flowover concerns from China's recent devaluation of its RMB, not once but twice. This leaves many of the prices of the companies within my portfolio at rather attractive levels. I may consider either adding unto my REIT positions (ie. Capitaland Mall Trust and Mapletree Commercial Trust) or adding unto a postion to Comfortdelgro, Singtel or Sembcorp Industries. I am still undecided at the moment but will commit the funds later this month.

Meanwhile, it's more studies on my CFA Level 2 and just monitoring the market dynamics in general. Will update again when I further consolidate my portfolio with new additions to my existing holdings + reinvestment of the incoming dividends.

Signing Off
Transitioning Stock Investor

Recent Market Volatility - Fight or Flight?

We have been seeing pretty extreme market volatility in recent weeks. I am sure many of us were adversely impacted, regardless of the size or quality of the portfolio. This recent volatility was made worse by China's recent decision to devalue the yuan, which caused further weakness in the financial markets.

Many of the companies in my portfolio saw steep declines in their prices. Although this is naturally quite unnerving, this also presents a chance to re-enter some of the positions, especially those in which I feel that they were oversold. This includes OCBC, Singtel, Sembcorp Ind and the REITs in the portfolio, whereby some of the current prices have fallen even below my average cost price. This is where the importance of a warchest is obvious, as it allows us to take advantage of such occasional opportunities.

I choose to continue to fight and not flight, so have you made your choice as well? I shall end off with this quote: Keep calm and invest on, my friends.

Signing Off
Transitioning Stock Investor

Passive Income Stream - A Way of Life

This is I'm sure one of the main objectives of being a full time investor, to have a passive income stream to support your lifestyle.

Most of us folks have a day-job and I find it really important to have a focus when we are generating this income. As I grow older and more mature, it has become more apparent that one of the main reasons why I'm working other than enjoying what I am doing is to ensure that the income that I'm generating from work is re-channelled into passive income sources. These sources can be either one of these 3 or a combination of them: Business, Property, Investments. I'm currently pretty happy with my career in fund research so I plan to carry on with my day job. How I plan to enhance the goose (my job) is to further my studies. I have taken a pretty long hiatus with my CFA studies and I recently decided to resume the level 2 exam after a pretty long interval.

In terms of property, I currently am both not extremely versed nor excited by property investments. I probably will just stick to upgrading to a bigger place at the end of the year and that should be it. The smaller the mortgage, the more comfortable I will be.

This leaves me with my passion, my drive, which are stock investments. Nothing beats the thrill of seeing your portfolio doing well and growing over time. The feeling of anticipation as I reinvest the dividends declared by the companies and the constant deployment and redeployment of resources really brings me an extreme sense of satisfaction that is really hard to describe. This is more than increasing monetary resources, this is increasingly becoming a way of life for me. Remember, it is never too later or too small to start building your portfolio. It took me around a year to build my portfolio from nill to where it is today at c. S$72,000. My next aim is to hit $100,000 portfolio value and when that happens, some portfolio rebalancing might occur. But at the moment, am loving the way it looks and am looking forward to the dividend windfall of around $500 plus for the month of Aug.

Will do a short writeup and update on the dividends that will be received this month in due course. For the moment I sincerely hope this has inspired you to start or to carry on your great job of building passive income! Remember, enjoy what you do and the results will always surprise you

Signing Off for this weekend
Transitioning Stock Investor

Thoughts on Sembcorp Industries - 2 Aug 2015

It's been a pretty interesting week hasn't it. I hope many of you have solid portfolios, that in spite of the recent volatility has held up well.

I recently have been receiving a few queries on Sembcorp Industries and my views on the company. As you may know I am currently holding unto 3,000 shares of this company with an average cost price of $4.26. To be very honest, although I do feel uncomfortable seeing the recent stock price plummet, I still am very convicted in this position. Now do let me make some points on why I say this, with some caveats obviously.

1. Correlation of Sembcorp Industries and Oil Prices
- Now, we know that Sembcorp Industries owns a large share of Sembcorp Marine and we have seen the recent poor numbers from the latter company. I did a correlation study of Sembcorp Industries with the price of oil, over time. What can be seen pretty obviously is the high correlation of oil price to the price of Sembcorp Industries. What I also noticed is the convergence of the stock price to oil and based on current values, the stock price still has some way down to go if it does converge.

2. Oil Market in General
- Now, in relation to the point above we need to understand the oil market and its dynamics. I could go on and on but in summary what I can describe the market is there are two main factors: Supply and Demand.
-Supply of Oil: This is closely controlled by OPEC in which there are key parties like Saudi Arabia, Russia, Kuwait, etc. The current dynamics is this, the Saudis refuse to cut production to prop up oil prices because they want to maintain market share. They also want to force out the shale oil drillers in the US because when oil prices are low, they go below the production costs of shale oil and as a result if these shale oil drillers are unable to sustain low prices and margins, they need to shut down. And the Saudis have large pockets to wait this out. However, you also have countries like Russia which need oil prices to recover to prop back up their economy.
-Demand of Oil: China has been slowing down and as such the demand for oil. Some countries are also exploring alternative energy sources which may affect oil demand albeit not in the forseeable future.
Summary of Oil: There are a myriad of other things about oil that I can nag about, however in summary what I can say is this. I expect oil to stay low, but probably come back up by next year. It is anybody's guess but I really dont see this scenario panning out for too long. And when oil does shoot back up, which it has done many times before, this stock is well-positioned to capitalise on that.

3. Sembcorp Industries's valuation and businesses
- Similarly, we can scrutinise all of their businesses to a fault and come to a premature conclusion. But I won't. However, what I can observe is that the current valuations of Sembcorp to me are very fair. I say this being fully aware of their relatively high debt levels, declining margins, etc.
- However, let us not forget these factors:
a. Sembcorp Marine is still one of the world's best offshore rig builders with superior management and a rather long history.
b. Secondly, utilities is still a necessary business model and in spite of domestic pressures, the company has expanded overseas like India to build their businesses there.
c. Most importantly I still do not see any impairment to their business models. Yes, they have lower orderbooks and declining margins, but it is obvious that these are highly correlated to the concerns on oil prices. Do I see this as a long term impairment? Clearly not.
d. The businesses that Sembcorp is in require high levels of capital investment and are large moats with high barries of entry. I love that for any business.

In summary, what I can comment about Sembcorp Industries is that even though I see declining profits currently, I don't have much concerns on it going forward. In times of uncertainty, we really need to dig deep and ask ourselves our initial reasons for investing in a current company and whether those reasons remain intact. They clearly do for me in this company as I wait out patiently for oil prices to rebound and as a result recover the margins for this well-managed, world class company that    will soon prove its detractors wrong. There is no signs of impairment of the business and more importantly its management and any near term price concerns will be shrugged off and/or good reasons for adding more positions in which I am planning to do so probably.

Comments are most welcome!

Signing Off
Transitioning Stock Investor