My Investment System Reflection - 2

What kind of Selling Strategy should i implement in my BSPA?


Before buying into a company, i should do my homework to read the company's quarterly & Annual reports to derive my Intrinsic Value of the company for 4 years ahead.

How do i do that?

(1) I am buying this company for it falls into which category of my Investing?
1. Value Growth?
2. Deep Value?
3. Dividend?

(2) Which industry does this company falls into?
1. Food & Beverages?
2. Consumer Products?
3. Manufacturing?
4. Semi-conductor?
5. Information Technology?
6. etc

(3) What is the industrial PE for the past 10 years?

(4) What is the average PE for her peers?

(5) How is the historical Revenue and the projected growth going 3 - 4 years forward?

(6) How is the historical Profit and Profit Margin and the projected growth going 3 - 4 years forward?

(7) How is the historical Cash Flow and the projected growth going 3 - 4 years forward?

(8) How is the historical Dividend yield and how many % of the Net Profit be converted into dividend and growth, and the projected growth going 3 - 4 years forward?

(9) What is historical ROE for the past 5 years and the projected ROE growth going 3 -4 years forward?

(10) What is the intrinsic value of the company going 3 -4 years forward? 

One of the way to calculate the intrinsic value is to use Buffet Intrinsic Calculator from:
buffettsbooks.com/howtoinvestinstocks/course2/stocks/intrinsic-value-calculator.html#sthash.jEhBZTtD.dpbs

(11) At how many % discounted Intrinsic Value should i divest my shares?

(12) Divest partially or fully?

(13) Different category of Investing will have different Assessment of Selling Strategy.

(14) Will i buy back the share once divested?

(15) Will i average down when it drops to certain %?

(16) How many will i average down and how much cash i am holding?

My Investment System Reflection - 1

My portfolio value had reached its peak at about $530k mid of April and fell all the way down to about $380k mid of June. It was just 2 months away, my portfolio value had been up and down in 30% variation.

This tells that investing in stock market will never be easy. It involves human emotion: greed, fearful, daring, worry, eagerness, willing and unwilling, and all macro issues around us.

As for me, i am doing my best to create a System for my Investment - will call it BSPA.

A system that is able to work well and make me sleep well at anytime in the market: bull or bear.


How does BSPA work?

BSPA stands for Buying Selling Portfolio Allocation.

These 3 things are very important in order to create and maintain a Sustainable Portfolio.
I just want to focus on BSPA - the things i can control.

(1) Buying Strategy:

I should allocate a specified percentage of my portfolio to every counter. 

Case Study (example):

I am 35 years old and holding 500k in cash.
I wish to buy Tat Seng Packaging as it meets my Buying Criteria from the System.
(1) List down all the criteria in buying Tat Seng
(2) Set an intrinsic value for Tat Seng: e.g $1.20 per share.
(3) Will allocate 10% of my cash into this company.
(4) First time i will buy 50% of my allocation: (50% X $50,000 = $25,000 ) = 31,500 shares at $0.80 per share.
(5) If the share price continues to go up to $1.00 - do nothing.
(6) If the share price falls about 10% ($0.72) from my initial cost, i will add 10% of my remaining (10% X $25,000 = $2,500 ) = 3,500 shares at $0.72 per share.
(7) If the share price falls another 20% ($0.56), will add another 40%: (40% X $22,500 = $9,000)  = 16,000 shares at $0.56 per share.
(8) If the share price falls another 20% ($0.40), will add another 40% : (40% X 13,500 = $5,400) = 13,500 shares at $0.40 per share.
(9) If the share price falls another 20% ($0.24), will add all the remaining amount ($8,100) = 33,750 shares at $0.24 per share.


(2) Selling Strategy:
Before buying the company, i should set a target selling price based on the last FY reports, quarterly reports to derive:

(1) I am buying for which category? ValueGrowth? Deep Value? or Dividend?
(2) Intrinsic Value of company based on all the numbers including dividend.
(3) Maybe i am more comfortable with intrinsic value of 4 years going forward.
(4) PE, Sales Growth, ROE, Free Cash Flow, and Dividend are major components in deciding when to sell.
(5) How should i partially/fully divest the shares? --- will cover more on this in my next post.


(3) Portfolio Allocation:

1. How many % of portfolio in every company?

2. How many % of cash to deploy at 1st time buying?

3. How many % of cash to deploy to average down? 

4. How many % of cash during bull market? when the valuation of my companies reach high market value? - cash holding should be high here.

5. How many % of cash during bear market? when the valuation of my companies are undervalued? - cash holding should be low here.

My Sytem Modification 1

1. Investing is a PROCESS, a Journey and it is NOT a destination.

2. NEVER add/average UP a company with ROE lower than 15% (low ROE)!

3. Do NOT let GREED taking over our calculation based on data.


Buying a Company:

The 1st thesis of investment:

(1) Value Growth? - good balance sheet, good business model, good management, ROE > 15%

(2) Deep Value? - good balance sheet, good management, stability of business/revenue, ROE < 10%.

(3) Asset Value? - good balance sheet with undervalued price to asset value.

(4) Dividend? - good balance sheet, good business model, good management, ROE is very low .


When the share price has been up tremendously, i should periodically check back with my 1st thesis in purchasing this company:

(1) Am i buying for value growth? deep value? asset value? (this is not my criteria) or dividend?

(2) When i invest for value growth, i should hold longer term.

(3) When investing for deep value, should tabulate the numbers in terms of ROE in a systematic model year by year based on the past 5 years to derive the historical ROE, comparing the PE with historical PE in the industry, and its peers' PE.

(4) I should always set a target price every year after financial reports are out.

Portfolio Value as per July 2018

No.	Counters	No of Shares	Market Price per Share (SGD)	Total Value (SGD)
1	AEM	48,000	$1.100	$52,800.00
2	Avi-Tech	100,000	$0.380	$38,000.00
3	Best World	50,000	$1.310	$65,500.00
4	Chasen	300,000	$0.076	$22,800.00
5	Innotek	190,000	$0.400	$76,000.00
6	Sunningdale	60,000	$1.360	$81,600.00
7	Tat Seng Packaging	50,000	$0.690	$34,500.00
8	Cash			$24,556.80
			TOTAL:	$395,756.80

(1) Bought back Chasen after some considerations.

(2) I have been doing some self reflection for these past few weeks to restructure my strategy again. My buying - selling - buying Chasen acts have not been really pleasing to my Investment Strategy.

- Reading "Rich Dad's Prophecy - Why The Biggest Stock Market Crash In History Is Still Coming" by Robert Kiyosaki.

- Listening to Webinar of TheFifthPerson.

(3) Going forward i really need to improve the following areas:

1. Portfolio Management - portfolio allocation (including % in certain sector, cash portion).

2. How to value a company and to divest partially when the business is in discounted valuation (maybe 80% from my target valuation?)

3. To read more in detail of company Annual Report.

4. To explore more in my analysis, found out from TheFifthPerson's webinar to use www.marketft.com/data/equities to know more on the peers comparison, etc.