Last week, I blogged about the Changes to My Investment Strategies in 2014. This week, I will share what are the likely changes in 2015.
Generally, I am not a big-time investor into dividend stocks. This is because I am predominantly a value investor. Value investors seek out undervalued stocks so as to make capital gains when the stocks recover to their intrinsic value. Whatever dividends paid out is a bonus and a side-product of the investment strategy. When I firsted started investing, the dividends collected were very small. However, as my capital grows over time, the amount of dividends also grows, so much that they now form a significant portion of the realised gains.
Although I have dividend stocks in the form of preference shares, REITs, some business trusts (and shipping trusts previously), dividends are not the primary consideration for their purchase. These non-equities primarily serve as reserves to be drawn upon in time of market crises, so the key considerations are capital preservation and liquidity. These non-equities must able to maintain their value and allow conversion into cash with minimal loss for reinvestment into stocks during market crises. Only when these 2 considerations are satisfied will I consider the amount of dividends they are paying. Although I have kept a few REITs and business trusts despite them failing the above considerations during the Global Financial Crisis in 2008, I remain wary of them. You may wish to read REITs Are Not Forever Attractive, Do REITs Overpay for Their Acquisitions? and The Hidden Risks of Buy-and-Leasebacks for Industrial REITs for more info.
So, generally, I do not invest for dividends. However, you can easily find investors who have a lot of success investing in dividend stocks. So, one investment strategy I plan to adopt this year is to invest in dividend stocks. I have actually screened through a list of high-yielding stocks. To my bemusement, there are some stocks on the list that I had sold previously, for reasons such as "they were too boring", "not part of my core holdings", "did not want to stick with them through a bear market", etc. Of course, when I first bought them, it was for their capital appreciation potential, so when they failed to meet those expectations, they were sold off. I wondered if I were to buy into these stocks again, this time for their dividends, would I end up selling them off for the same reasons mentioned above? Thus, for the dividend stock strategy to be succesful, some reconciliation needs to take place first, so that I do not end up selling the stocks when the market turns south. So far, 2 stocks have been bought based on the above strategy.
In Not All Market Indices Are Equal, I mentioned that some stock indices performed better than others and the US stock index has beaten my expectations since 1995. I mentioned that there could be something right going for the US stock market that I might not be aware of, and I would switch one underperforming unit trust into the LionGlobal Infinity US 500 Stock Index in my Supplementary Retirement Scheme (SRS) account. I would probably be starting a new portfolio comprises 70% in the US 500 Stock Index and 30% in global bonds for my cash account to be consistent with my belief. As usual, the key concern is whether now is a good time to invest given that the US stock market has yet again reached new highs and interest rates are going up. There is an inherent defence mechanism built in such a portfolio, as explained in Possibly The Worst Time to Invest. But still, it might be prudent to spread out the investment over 12 months instead of a lump sum. This way, I could also conserve cash for the dividend stock strategy mentioned above.
Overall Investment Strategies
If you put all the investment strategies mentioned in this post and the last, you would realise that they are very diverse. I am, all at the same time, active in passive investing and passionate about active investing; going after capital appreciation in undervalued stocks as well as dividends in fully-valued stocks; bought the highest-price stock (Keppel Corp) and the lowest-priced stock (turnaround stocks) in my investing history. How do you make sense of all these seemingly contradictory investment strategies? It arises out of a realisation that, after 28 years of investing experience (including the years I was monitoring stocks for my father), all investment strategies work to some extent, but none will work perfectly. See An Advice for Myself for more info. When you let go of a single tree, you will gain a forest.
This part is not about investments but is more related personal finances. Truthfully speaking, I have not been very generous about giving donations. The main reason is that I am frugal in spending. Secondly, I believe I could grow the money and make a larger donation in later years. Assuming that I invest $1 at 7% for 25 years, it will turn to $5.43. It is better to donate $5.43 than $1.
However, progressively, there has been shifts in my thinking regarding donations. Part of the reasons is that there is some room to relax the purse string after working and investing for 16 years. Secondly, I am beginning to come around to the idea that donation is not about sympathy but a social obligation to help those lagging behind. You can find the shifts in thinking in The Economics of Income Inequality and Capitalism, Consumerism & The Distribution of Wealth.
There is another blog post that I have not written that will complete the picture why the review of my donation policy has taken more urgency. Generally, the idea goes like this: when we see people who are successful, we believe that they are successful because they have worked very hard and took more risks than others. The conventional wisdom is that those who are less successful should then work harder and/or take more risks rather than rely on others for help. However, does it mean that those who are less successful did not work as hard and/or took less risks? Or employees who did not get promoted put in less efforts than those who got promoted, or students who did not get As in their exams are lazier than those who got As? While it may be true that some people who are lagging behind did not work as hard, I believe we also know of instances where we or others have put in a lot more efforts, blood and sweat than those who were eventually successful and still did not get the desired results. Most of us have tasted both success and defeats before to know that efforts do not always commensurate with outcomes. When seen in this light, everyone, both ahead and behind, is really one big community. A member who is ahead should help those who are behind. It is not charity or sympathy, but an obligation because we are all part of the same community. Relatively, we are both ahead of some people and behind others, and we could all lend a helping hand to those who are behind us.
So far, the small steps taken are to increase my monthly contributions to Community Chest and in my expense tracking, to take the "Donations" expenses out of the "Others" category so that it has its own budget rather than share a budget with all other uncategorised expenses. I have also added a link to SG Gives in this blog for readers who might wish to make a donation. For 2015, a review will be carry out to determine how much money should be donated and how should it be donated.
See related blog posts:
hi from your post, knowing that you have some oil n gas stocks.ReplyDelete
are you going to average down?
how do you think of PEC, i also have PEC. wish to hear your analysis of this company.
Sorry for the late response. I won't be averaging down at current prices as I've completed the buying at current levels. However, if prices go further down, then yes, I will look at the oil stocks again.
As for PEC, the stock has been disappointing, but I will keep it for now waiting for the recovery.