I am a value investor so my holding period is based on a fundamental investor perspective. If you are a trader, you would have the trading rules to guide you.
I see 2 ways to grow wealth:
- Invest in a portfolio that you never sell because they are the companies that can increase shareholders' value over many decades. Unfortunately, I cannot identify such companies.
- The other way is to start with a portfolio of undervalued stocks. When some of the stocks become overvalued, I sell them and then reinvest all the monies into other undervalued stocks. I then repeat the cycle for a different set of portfolio stocks.
My track record with this portfolio strategy is that I have about 15 % stock turnover annually. Another way to look at this is that on average I hold a stock for about 5 to 7 years.
To be able to execute this portfolio plan:
- I need to find replacement stocks every year. Thus, having several types of value investment helps this strategy.
- I have an investment process that delivers consistent returns that is independent of the type of companies in the portfolio. I find that value investing enables me to achieve this.
- I need patience. It is a plodding way to grow wealth. Effectively I am the tortoise in the race rather than the hare.
The above explains why I am a long-term investor.
It is because business fundamentals do not change overnight. It may even take years for companies to turn around. It may even take longer for the market to recognize changes in business prospects.
The moral of the story? There are two things determining how long I hold onto my stocks
- I hold onto my stocks until they are “ripe”. The duration is not something I set.
- After waiting for 10 years, I usually call it quits and sell the particular company, putting this as a value-trap and unhappily accepting the loss.
About less than 5% of my stocks fall into the last category. The good news is that despite this loss, overall I still beat the index.
For more of such insights go to
An Introduction to Value Investing - confronting value traps
(25-07-2023, 10:09 AM)i4value Wrote: [ -> ]I see 2 ways to grow wealth:
- Invest in a portfolio that you never sell because they are the companies that can increase shareholders' value over many decades. Unfortunately, I cannot identify such companies.
Microsoft? Berkshire? I have a ex-colleague who was investing for the first time. He took a while and finally decided to dump all his $ into Berkshire in 2009 at $70k a share. $70k is a lot considering he has worked for only ~3 yrs. I believe he is still holding on to it now.
Good for him. I think it would have gone up at least 5 fold by now. The real challenge is whether there are such companies on SGX or Bursa.
I doubt there are any such co in sgx except maybe the banks. good co here usually grow for a decade and then hit the wall the next decade and falters after that. The interesting thing is, when one first started investing, one will usually buy local co. But he didnt. Not only that, he even dump all his savings in Berk.
(25-07-2023, 07:04 PM)Bibi Wrote: [ -> ]I doubt there are any such co in sgx except maybe the banks. good co here usually grow for a decade and then hit the wall the next decade and falters after that. The interesting thing is, when one first started investing, one will usually buy local co. But he didnt. Not only that, he even dump all his savings in Berk.
Home bias (
https://www.investopedia.com/terms/h/homebias.asp) is a well-known, likely sub-optimal behavior/strategy, if the objective is to achieve the best risk-adjusted and/or absolute returns.
Especially considering that in Singapore, the publicly available online resources, and disclosure requirements (GAAP, quarterly webcast etc.) are much fewer, compared to more mature markets . That's before considering the limited investment options available.
Curious to know if you agree, i4value as well.
(25-07-2023, 10:09 AM)i4value Wrote: [ -> ]I am a value investor so my holding period is based on a fundamental investor perspective. If you are a trader, you would have the trading rules to guide you.
I see 2 ways to grow wealth:
- Invest in a portfolio that you never sell because they are the companies that can increase shareholders' value over many decades. Unfortunately, I cannot identify such companies.
- The other way is to start with a portfolio of undervalued stocks. When some of the stocks become overvalued, I sell them and then reinvest all the monies into other undervalued stocks. I then repeat the cycle for a different set of portfolio stocks.
My track record with this portfolio strategy is that I have about 15 % stock turnover annually. Another way to look at this is that on average I hold a stock for about 5 to 7 years.
To be able to execute this portfolio plan:- I need to find replacement stocks every year. Thus, having several types of value investment helps this strategy.
- I have an investment process that delivers consistent returns that is independent of the type of companies in the portfolio. I find that value investing enables me to achieve this.
- I need patience. It is a plodding way to grow wealth. Effectively I am the tortoise in the race rather than the hare.
The above explains why I am a long-term investor.
It is because business fundamentals do not change overnight. It may even take years for companies to turn around. It may even take longer for the market to recognize changes in business prospects.
The moral of the story? There are two things determining how long I hold onto my stocks- I hold onto my stocks until they are “ripe”. The duration is not something I set.
- After waiting for 10 years, I usually call it quits and sell the particular company, putting this as a value-trap and unhappily accepting the loss.
About less than 5% of my stocks fall into the last category. The good news is that despite this loss, overall I still beat the index.
For more of such insights go to An Introduction to Value Investing - confronting value traps
Let's break this down.
1. If your strategy is to let the market re-rate the multiple of the stock you own. Then you should aim for much higher turnover per year. Low turnover (<15%) is probably suboptimal for this strategy. Since for less stellar companies that aren't able to internally compound cashflow; the longer your holding period, the more this strategy would work against you.
"Time is the friend of the wonderful company, the enemy of the mediocre." - WB
IMHO, should aim to be short-term, instead of long-term.
2. On beating the index. Which benchmark should one compare yourself with? Personally, I would try to compare my performance with the VTI, SPY and QQQ, since they are the more popular "obvious" choice for indexers. They offer broad diversification across currency, markets, sectors etc. and are easily assessible to local investors, with low expense ratio.
Curious to hear your thoughts.
I am coming from a stock picking perspective. For an apple-to-apple comparison, you should compare your performance with the stock market in which you are investing. You are testing your investing skills against the market. So it has to be the stock market where you companies are listed on. If you are investing in several markets, then the benchmark should be a weighted average of the index of the various markets.
I think you should benchmark against your opportunity cost
If your alternative is SPY ETF that you would realistically invest (not hindside) then that would be your benchmark. If your alternative is Fixed Deposit that should be your benchmark and will shape your investment into safer dividend stocks.
This is a subset of your asset allocation. going by 60/40 you take say 5% from Fixed Income to invest into a FD alternative. It's not always equity returns. In fact hedge fund alternative should be FI but marketing took over the rein.
Agreed.
Everyone knows according to EMH, we are not favored to beat the index, long term.
We also know, the approximate index allocation that suit our risk appetite (be it CPF SA, dividend etf, STI, SPY, QQQ, VTI etc.).
Hence, "your opportunity cost", is probably the best benchmark.
If you come from the angle that you want to improve yourself, then I am not sure opportunity cost is a good benchmark. There are many investors who have shown that you can beat the index and that EMH is not really true. So the best benchmark (for improving yourself) is to look at the great investors and try to develop your skills to match them.