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In this second instalment of STE's story, he shares his investment strategy. Here, we see how he frankly admits that luck plays a part in the grand scheme of things.
Like I found out the hard way, never trust anyone who says that his success is due to foresight and that luck has nothing to do with it.
Someone who is humble and admits that he was lucky as well is the more credible investor.
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My investment philosophy is simple. We only need to know two things:
1) Margin of safety
2) Mean Reversion
In the long run, the stock market trends upwards and, of course, it is hard to catch the bottom. However, one should try to avoid hype and enter the stock market when things are hot. If we had invested in tech stocks when their share prices were chased sky high, I think we might not have recovered even now.
Most of time, the stock market is stable and doesn't move much. Although stock prices will fluctuate, big fluctuations are rare and maybe happen on less than 5% of days.
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| "Mean reversion is a mathematical concept sometimes used for stock investing, but it can be applied to other assets. In general terms, the essence of the concept is the assumption that both a stock's high and low prices are temporary and that a stock's price will tend to move to the average price over time." Source: Wikipedia. |
I suggest that we study and understand the market by reading some books on behavioural finance and economics. This, I believe, is more important than any books on investment. They help us to understand market psychology.
I was lucky to buy some shares during the 1998 Asian Financial Crisis. I bough a lot of Malaysian banking stocks back then. I skipped the dot com bubble. I also bought stocks of many blue chip companies like IOI, Perlis Plantation and Genting, making a few hundred thousand dollars soon after.
As we decided to switch citizenship in 2007, we disposed of all our assets in Malaysia, including our house in JB. On hindsight, we were really lucky because the sub-prime crisis erupted at the end of 2008 and we had the cash to take advantage of the situation.
At that time, I wondered what to invest in. Since the property market was badly hit, I thought it must be a good bet and since I needed some margin of safety, I decided to invest in REITs which generate stable income. Most REITs were giving double digits distribution yields then. I bought into Suntec REIT, K-REIT, Mapletree Logistics Trust, Cambridge Industrial Trust etc. I am still holding on to some of them now.
Another reason why I invested in REITs was because of "price stickiness". Rents might be adjusted downwards but I believe they will not go to zero especially in Singapore which is such a small country with high population density. Although interest rates might increase in the next few years, inflation will still be a problem.
I would usually try to maintain 10 to 20% in cash BUT this time round I bet BIG and invested all, including my CPF money. I might be wrong but who knows for sure? Anyway, every 2 to 3 quarters, we will have more than $100K collected from dividends. Since we are both still working, we can save all the dividends collected.
We plan to retire by age 50 and that is 7 years away. Using the magic of compounding, our investment portfolio should have added another $2 million by then without any fresh injection of capital. I believe that we will be able to retire comfortably if we are not extravagant, keeping our life simple. We are happy and contented with what we have.
I hope to inspire others with my story that we could achieve financial freedom through our own efforts even without anything in the beginning.
Read the other blog post on STE:
STE's story: Personal finance.
Related posts:
1. To be richer, be comfortable with being invested.
2. REITs: For those who have paid higher prices.
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