Hold IT!

I invested mainly in equities (stocks if you called it). And sorry to sound boastful but I am also proud to say so far my investments are still reaping returns. That is why a lot of my friends or acquaintances look for me for tips and advise at the current situation.

This current economic crisis had took a toll on some of my friends investment portfolios. Some of the stocks in my portfolio also suffered, especially those penny stocks. (I'm so glad!)None of them blames me, but one or two did approached me and asked what they should do. Especially with their banking stocks.

My advise is the given title of this piece. Just HOLD it as long as you can. Remember those investment tips I gave out last time? If you have been following my rules of engaging the stock market and had enough cash on hand. Then just HOLD it. The storm will pass and you will back what you have.

If you have even more cash and you are able to invest more. Then its the time to buy more. Hell, I just bought 2 more lots of DBS last week. You can wait for it to drop further but to me the price is right and there is a supply of seller. And I always do long term. Not short term investments. If it drops further, no one will let go and the price will go up again...

All in all, be confident in what you have bought or researched. If the stocks you have bought were overpriced when you bought it (like SGX at $15!!! why would anybody buy at that price I figure) Then you really really need to buy more at the current price to bring down your average cost.

If not. Just HOLD it and wait till the economy recovers a bit and sell it. And don't get involved in equities again as its not suitable for you. Go buy 4D or toto instead.

It's Time.....to BUY

Stock market has crashed!! Already I have made some bargain purchases in the local market. Some my friends and colleagues says it will go even lower, so why buy now??

The main reason is that when its that low. Nobody will sell it anyway. So the best time to buy is actually when the market is going down, but have not bottomed out. Then what you do is to hold the stock for as long as possible (long term investments of at least 2 years). So even if the stock does not rebound. You most probably will get something out of their dividends payout. (I always look out for companies that are financially sound and has a good roadmap)

So what did I invested this time?? :) Just some stocks on energy related, agriculture and communications. As the title suggest. Now's the time to BUY... hehehe

Investment Strategies 4 - Penny Stocks

The next part I am going to spend my time on is the Penny Stocks.  What is a penny stock?  By wikipedia's definition "the official SEC definition of a penny stock is a low-priced, speculative security of a very small company, regardless of market capitalization or whether it trades on a securitized exchange (like NYSE or NASDAQ) or an "over the counter" listing service".

To me personally, I normally classify penny stocks as cheap and volatile.  Because in SGX, there are cheap stocks which are also started by small companies but their prices are not that volatile.  These stocks can be potential blue chips (PBS for short).  The stocks that I buy that are cheap are mainly these PBS. 

For beginners and novices.  Please shy away from penny stocks.  They are extremely addictive if you get hooked by them.  They are addictive as their prices jumps everyday and you are enticed to watch their price everyday to keep track of their movements.   And if you are lucky, they might give you great returns and the shortest period of time.  In short, its like gambling and if you do enjoy such thrills, do go ahead but set only a minimum sum(not more than $5000) to have some fun with them. 

I tend to shy away from these volatile stocks as I find its gambling and not really an investment.  You don't need to do so much studies on these stocks as their prices are normally fluctuated by the market forces.  If there are good news or rumours of a good buy, these stocks will rise and if you do catch the timing right to buy in, you will earn some.  But if you catch the timing wrongly.... I will say good luck to ya..

Investment Strategies - 3 Type of stocks (Blue Chips)

Before we plunge into the market. We need to understand the different type of stocks in the market. You've heard about the blue chips and penny stocks but there are actually more categories. Anyway, we will focus on blue chips today.

Blue chips are everyone's favourite. This is because those stocks which are categorised as blue chips have the following traits:-
- They are big companies with a lot of years in business. (Very established business with little or minimum liabilities)
- They pay dividends almost all of the time (even when the economy is not doing that well.
- Their stocks have large market capitalization.
- Price is normally high.

Notice I have highlighted the second statement. Dividends. This is the most attractive part of investing in blue chips. They pay out almost every year and this money is immediately your profit. Prices of blue chips are also very stable and less prone to high or low drops. This is good as if you want to exit the market. You could get out easily too as they WILL ALWAYS be BUYERS for such stocks. Even if the price is lower than what you have bought when you try to sell, if you have already hold onto the stock for a few years, the dividends might already cover your lost!

Think about this scenario too. If a market is crashing and you are holding blue chips. The chances that it will regain back to the original price will be much higher than penny stock as it has huge market cap and very little liabilities. It just take time to it recover and recover it will! And if you have spare cash (remember the 30% reserve) during a market crash, its the best time to hunt for such bargain blue chips.

But the main issue is the price. Its normally very expensive to even buy 1 lot of blue chip stocks. So another way for small investor like me is to look out for potential stocks that may become a blue chip. How do we do that? Well, we search for them!

Just looking at the traits above, you could tell that any good companies that have been paying good dividends yearly and have a good track record in their business could one day become a blue chip. Keppel Corp is exactly a good example. 4 years ago, in 2003 its price is 3.00++ (actually less than 3 dollars). It rose to $20 plus this year. And it made a stock split (1 becomes 2 $10.00 stock) and its still rising! We could actually predict such stocks (not 100% but at least more than 50%) if we search around the stock market and look out for such gems. Imagine, 4 years ago, you bought 2 lots of Keppel at $6000.00SGD. Today it will be worth more than 40,000SGD!!! That's how many % profit?? Do you think any savings policy or bank could give you such an interest rate??

Of course in reality, such increases in stock prices are extremely extremely rare. But I was one of the lucky ones. hehe So I made some money out of it. But I am still holding onto my Keppel stocks as I do not need to sell. I could cash out but its still performing and I do not need the cash at the moment.

The main point here is, we could look out for potential blue chips stocks which are not that expensive and stick to it. Buy and HOLD. At least for a few years. For my case if I find a potential blue chip, I would hold at least a 5 year period before I determine if its something worth investing. If its not (such as not paying dividends in due and are in debt) Just sell and recover the lost and look for another one.

I shall stop here for all to absorb. Next post will be on penny stocks.

*For those interested, the name blue chips is derived from poker game chips. Where the blue coloured chips are the most valuable or highest amount of bet.

Investment Strategies - 2. Allocation

I want to expand more on the stock allocation. Especially in Singapore market. I myself have this rule of allocation. 30% reserve, 60% in blue chips and 10% on penny stocks.

This allocation is not fixed. You could tuned it to suit your investment style. If you are a high risk investor, you could put more % weights on penny stock. But try as much as possible to keep at least 50% of your money in blue chips. Its safer as these stocks are normally very stable and they give better dividends.

I keep 30% of cash reserve as a kind safety net. And normally, I would save up to that amount before I buy any more stock. For example, $3,000 is my 30% reserve. I will work and save to $3,000 or more before I buy any more shares. This reserve is really for some special cases that might happen in the stock market. Things that I could use the money for are like IPO applications, stock splits (most are good buys as its cheaper) or even some major things like market crash, you could actually use this 30% and go into the market to get some good bargains. Try as hard as you could to keep such cash floating as its a healthy habit. If there is a sudden need of money and you do not have enough savings, you could still use this 30% reserve before selling your stocks or investments. Remember, we are talking long term here!

Another important thing to note, never put in more money than you can afford. Never buy using contra. Be disciplined and stick to the allocation rule. Its like gambling. I take out $10,000. If I win, I will chip in more or I could cash out the profit to buy something I like or spend it on a trip or even saved it later for some other investments. But if I lose, then the limit I shall lose should be 10,000. No more no less. If you have lose the $10,000 with such allocation rules. It means you are not that good at picking stocks. Which will be the focus on the next chapter.