Rule no. 5: For a wonderful company, be delighted when its stock price falls, be regretted when its stock price rises.

A lot of investors do not like to see the prices of their stocks fall. However I do have a different view for this. I always buy stocks that have good fundamentals and at my fair price. If the price drops before my fair price, I will average down by buying more instead of cutting loss. My theory is very simple, buy when it is cheap, and buy some more when it gets cheaper.

Stock with a good fundamental will have a good chance of going up again. Furthermore I can collect dividends while waiting for the stock to go up again. That is why I always choose stocks that offer good dividends.

I have a friend who had bought Singtel at $3.40. The price started to drop until $2.85. I advise him to hold rather than cutting loss, and if he has extra money, he may want to consider averaging down. The price of Singtel at the point of writing this post has gone up from $2.85 to $3.10. He had collected a total dividend of $0.131. Though he is still making a loss now, but in my opinion, he will have huge gain in the future eventually.

I feel regretted when I see the stock price rises. It is because I am seeing myself buying stock at a higher price.

My Quotes/Rules of Investment

My Stock Strategy for Jan to Jun 2010

My current holding is as below:
5 lots of Singtel (CPF)
5 lots of SingTel (Cash)
20 lots of SingPost (Cash)
25 lots of Cambridge (Cash)

My sell plan is as below:
If Singtel reaches $4.00, I will sell 5 lots of SingTel(Cash)
If Singtel reaches $4.20, I will sell 5 lots of SingTel(CPF)
If SingPost reaches $1.15, I will sell 15 lots.
If SingPost reaches $1.25, I will sell 5 lots.
If Cambridge reaches $0.60, I will sell 10 lots.
If Cambridge reaches $0.70, I will sell 15 lots.

My buy plan is as below:
If DBS reaches $12.50, I will buy 1 lot.
If SPH reaches $3.20, I will buy 5 lots.
If SuntecReit reaches $1.10, I will buy 5 lots.

If none of the prices as above are reached, I will keep all stocks for dividends.

Please take note that I am applying my rule No. 1, which is I do not try to predict the market direction. So I have planned for both market directions. I am also applying my rule No.3 which is "It's far better for other to buy an overvalued stock from you, rather than you buy an overvalued stock from other".

How to invest regularly if you do not have a lot of saving?

A lot of people may say that investment will need a lot of capital and it is almost impossible for them to invest regularly. This is quite true, just imagine you want to invest in Singpost regularly, you will need to save about $1000 just to buy one lot. For some people, it may take 3 to 6 months to save $1000, so it is impossible for them to invest in Singpost once per month.

However, there are plans from some investment companies which allow investor to fix the amount of money they want to invest per month. One of plans that I have found is the Phillip Share Builders Plan (SBP). For those who has a POEMS account might already know about this plan. But for those who don't know, I will just give a short description.

From what I have read from the Philip website, the minimum amount that an investor needs to put in is $100 per month per counter. Investor can select which counter to invest in from the list of counter stated by the company. For dividend, it can be reinvested or you can choose to receive the dividend. You may want to find out more detail by checking out the plan at the PhilipCaptial website.

Another plan that I found is Regular Savings Plan (RSP) from fundsupermart. However please note that this plan invest in funds(or unit trust) instead of individual share or stock.

You may want to google "Monthly Investment Plan" to find out other plans that are not stated in my posts.

Closed my CFD account today

Today I am on leave, so I make a trip to one of the Philip branches to have my CFD account closed. The reason why I close the account is because I don't see myself as a trader any more. So I do not need an instrument to do shorting, contraring and leveraging.

If you are not familiar with what is CFD, you may google "CFD account" to find out more.

I also go to the POSB bank to activate the link for CPF Investment account in my ATM card. I have transferred that unused amount (about 10k) from CPF Investment account back to my CPF. Why do I need to do that? I have recently read a blog post @ http://sti-stocksinfo.blogspot.com/2009/08/calculating-cpf-interests.html

Based on the blog explanation, CPF interest is calculated monthly and not yearly. So if I transfer back the money back to the CPF account, I will get more interest next month as compared to leaving it in the CPF investment account.

If you are interested to find out more about CPF investment, you may google "CPFIS" or "CPF Investment Account".

Rule no. 3: It's far better for other to buy an overvalued stock from you, rather than you buy an overvalued stock from other.

My Rule no. 3 states that "It's far better for other to buy an overvalued stock from you, rather than you buy an overvalued stock from other." As mentioned in my post titled "Investor, Traders and Speculators Charts", stock can be undervalued and overvalued as there are traders and speculators in the market.

I value the stock simply by calculating its yield. See my post "Buying Stocks based on price and value" If the yield is no longer attractive as the price of the stock goes up, I will sell a portion of it first. If the price goes up again, I will sell the next portion. It will make my investment less risky as I know that I will be holding less and less overvalued stocks and I have free some money to target to buy other undervalued stocks.

Please note that I am adopting averaging down strategy when buying stocks. This will keep the average buying price as low as possible. As for selling of stock, I am adopting averaging up strategy. This is kept my average selling price as high as possible.

My Quotes/Rules of Investment

Who can be trusted in the market?

There are so many players in the market and who are the one you can trust?

Recently one of my friends told me that his broker recommended him a stock. He bought it, and since then the price of that stock keeps dropping. I don't understand why he chose to believe in his broker where his broker don't even share out his portfolio at all. This incident make me has the urge to write this post.

In my opinion, there are two people that you can trust in the market. The first one is you of course. If you cannot trust your own judgement in buying stock, why buy it in the first place?

The second one is someone who shares with other what are the stocks he buy or sell, show people how his strategy can work by using himself as an example, but will not make any recommendations.

Give you an analogy. If you want to learn how to play a piano, will you find someone who can talk about the history of piano all day, or someone that can demonstrate his skills by playing the piano in front of you? Of course for myself I will choose the second one as he has the skills who can show me the right way to play the piano.

Every morning, some tv channels always have analysts to talk about the market. They can talk very well and normally with some recommendation on what share to buy. Do these analysts ever show you their portfolio, tell you exactly what strategy they are using, any prove of their winning track record? The answer is almost all "NO". Basically these analysts are just paid to write and talk, just like someone who just talk about the history of piano and you don't know whether he can actually play the piano or not.

Dealing with Market Randomness

Before you read this post, you must convince yourself that direction of the market can never be predicted. You may see my other post titled "Rule no. 1: Never predict the market." and see whether you are convinced.

Methods on dealing with certainty and randomness are completely different. For things that are certain, you just need to go for the best approach to get maximize gain. For things that are random, you will need to manage your risk in order to maximize your gain.

So how to deal with the market since it is random? The keys are:

1) Fixed your own winning strategy and follow it all the way. Don't use it randomly or stop it half way. You can find my strategy in my post "My strategy in investing stocks. "

Have you ever hear of stories from people who had bought the same 4D number for many years. For many years, they have not strike the number, but when the moment they stop buying the number, the number suddenly appeared as the first three prizes in the next few days or weeks. I am not encouraging people to buy 4D as it is a losing game in long run, but I just use it as an illustration. Fixing your own winning strategy and following it all the ways is perhaps a better method as compared to those who never follow it consistently.

Following your strategy all the times is one of the hardest thing to do in the stock market as you are facing real time prices jumping up and down every second. If your will is not strong, your emotion will prevent you from following your strategy. "Buy and don't look back" is one of the ways one can use to ensure strictness on your strategy.

2) Make “dropping of price” and time as your friends and not enemies.

As an investor, I will make “dropping of price” and time as my friends and not enemies.
Seeing a good stock falls in price after buying it at a fair value is not a surprise to me. It is because I have already convinced myself that market is random. See my post "Investor, Traders and Speculators Charts ".

For a trader, he may just cut loss immediately after seeing the price drop. But for me, it provides me a good opportunity to buy more. If the price goes up, I will not buy anymore, but rather wait for the stock price to be overvalued to sell.

Time is my friend as I will just wait as long as I like for the stock to go up. I will collect dividends while waiting. Remember, contra player make time as their enemies as they cannot hold their position for more than 3 days. They are most likely to lose money as compared to a investor who is doing averaging on a good stock.

Rule no. 1: Never predict the market direction.

As stated in my post "My Quotes/Rules of Investment", my first rule is never predict the market direction and my second rule is don't forget the first rule. I have been following these two rules since Oct 09. In my opinion, market direction can never be predicted. Why do I say so?

In mathematics, you might see this simple formula,
y = x + 1. So if you know what is x, you can easily know the value of y, the formula is very easy.

Let us see another formula,
y = x + z + 1. Again you must know what is x and z, then you can calculate the value of y. The formula is a bit complicated but still managable.

How about this formula,
y = a + b + c + d + e + 1. There are total of 5 variables and you need to find out all the variables before you can calculate the value of y.

Why economics news make a trader hard to predict the market? Let say there are 5 economics news which can affect the market, you must know whether all the 5 news are positive or negative. To find whether y (the market direction) is postive or negative, you will need to sum up a, b, c, d, and e economics news first. But before you are able to calculate based on your formula, the market direction has already affect in the news. So if you try to predict the markets, you are often too late.

Why Technical Analysis cannot be used to predict the market direction?
I agreed that TA can be used to calculate risk/rewards ratio, but never the direction of the market. If someone were to predict the random market direction accurately, his or her brain will be more complex than the random market direction.

For example let's says the daily share price of a stock is as follow, 1, 2, 2, 3, 3, 4, 5, 5, 4, 3, 5, 6, 7, 8, 9, 8, so what is the next price after 8? You can say is 7, 8, 9 or other number by using TA. That is simply guessing. If you do not know what is the next number in my mind, how do you know what is the next number. The only way you can guess correctly is to read my mind. That will mean that you have powerful six sense or you are a super human being who can control my mind. Even you can read my mind accurately, can you read millions of people mind who trade in the market?

So next time if there is a stock guru tells you that he can predict the market direction, give him a series of ten numbers and ask him to guess whether the next number is higher or lower than the tenth number.

My Quotes/Rules of Investment

The Goose That Laid the Golden Eggs

One of my favourite childhood stories is "The Goose That Laid the Golden Eggs". I believe most of you have heard of the story. For those who have forgotten the stories, I have written a summarize version of it below.

The story goes like this: A farmer had found a goose that will lay a golden egg every day. Even though his life is getting better as he no longer needed to do any farming, he found himself not getting rich enough. Due to his greed, he decided to kill the goose thinking that he can get all the eggs inside the goose. Unfortunately, he was not able to find any egg inside the goose. For that day onwards, the farmer grew poorer and poorer as he can no longer find another goose that will lay golden eggs for him every day.

In the stock market, there are many such farmers or investors around who do not know how to value their stocks. Some of the stocks are actually providing a lot of yields or golden eggs every year, but because of a sudden increase or decrease of stock price, they decided to sell the stock away for a short term gain or cut loss. After selling their stock, they realised that the price and the yield of the stock went up even higher. They had decided not to buy back the stock as the price has increased a lot.

My purpose for this post is to suggest that it is good to hold those good fundamental stocks with good yields which are bought at low prices. It doesn't matter that the price movement of the stocks may be slow. What is more important is that these stocks are providing good yield consistently. So don’t try to sell them for a short term gain or cut loss as most of the times the price of the stocks will go up after selling it. You will find yourselves very hard to buy it back at high price even thought it is still a "Goose that laid the Golden Eggs".

Why I am not afraid of losing money in my investment?

Here are the reasons why I am not afraid of losing money in my investments.

Reason 1:
I am using my own extra money that I can lose.
In my post titled "Do you have a peace of mind after buying shares?", I have mentioned that I am using the money that I can lose, and losing this money will not affect my life at all. I did not borrow any money, or using any leverage instrument to increase the risk of investment.

Reason 2:
I am buying fundamental good stocks.
In my post titled "My Stock/ETF choices", I have mentioned that I only buy fundamental good local stocks that are very safe in my opinion. I only buy stock that I can understand and I will never speculate.

Reason 3:
I am buying under valued stocks which give good dividend.
In my post titled "Buying stocks based on price and value", I have mentioned that I am targeting stocks that produces good value or yield. With this in mind, I am not afraid to hold these stocks for long term as they are constantly giving me good dividends. In the same post, I have stated my formula to calculate the value of the stock.

Received dividends of $187.50 from SingPost (1 Dec 09)

I am happy to see that dividend of $187.50 from my 15 lots of SingPost has been transferred to my bank account today. I will not spend but save this amount of money for further reinvestment.

Why I invest in Cambridge industrial trust?

In my opinion, Cambridge Industrial Trust is a wonderful company. So far it has been giving good dividends ranging between 0.01 to 0.02 cents every quarter. Even during the recession period at year 2008, the dividends given are still very good. At the current price of about $0.40, its yield is about 10% per year.

From the company website, CIT invests in industrial properties such as logistics, storage and warehousing, manufacturing and showroom facilities all located across Singapore’s key industrial zones. With this strong fundamental and high occupancy rate, I believe that this company will continue to do well.

Click here to see my other choice of stocks/ETFs.

My stock strategy from now till 2010 (Updated on 27 Nov 09)

My current holding is as below:
5 lots of Singtel (CPF) ==> Confirmed dividends of $310 (Dec 09)
5 lots of SingTel (Cash) ==> Confirmed dividends of $310 (Dec 09)
15 lots of SingPost (Cash) ==>Confirmed dividends of $187.50 (Nov 09)
25 lots of Cambridge (Cash)

My strategies:
My stock strategies are as below:
If Singtel reaches $3.50, I will sell 5 lots of SingTel(CPF)
If Singtel reaches $4.00, I will sell 5 lots of SingTel(Cash)
If Singtel reaches $2.65, I will buy another 2 lots of Singtel using Cash.

If SingPost reaches $1.25, I will sell 5 lots.
If SingPost reaches $1.50, I will sell 5 lots.
If SingPost reaches $1.75, I will sell 5 lots.
If SingPost reaches $0.90, I will buy 5 lots.

If Cambridges reaches $0.70, I will sell 10 lots.
If Cambridges reaches $0.90, I will sell 15 lots.

If DBS reaches $12.50, I will buy 1 lot.

If none of the prices as above are reached, I will keep all stocks for dividends.

Please take note that I am applying my rule No. 1, which is I do not try to predict the future. So I have planned for both market directions. I am also applying my rule No.3 which is "It's far better for other to buy an overvalued stock from you, rather than you buy an overvalued stock from other".

Investing is boring

After I have set my goal and bought my target stocks, the next thing is to wait. I am starting to find that investing is boring.

Investing should be as boring as possible so that you are not emotionally affected by the price changes everyday.

I found myself no longer look at the dow future and charts. Instead, I would spend some time searching for other quality, high dividends and value stocks to be invested next time.

I finally understand what Warren Buffett meant by "Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years."

My stock strategy from now till 2010

On 16 Nov 09, I have placed my last position, and my holdings are as below:

5 lots of Singtel (CPF) ==> Confirmed dividends of $310 (Dec 09)
4 lots of STI ETF (CPF) ==> No confirmation yet.
5 lots of SingTel (Cash) ==> Confirmed dividends of $310 (Dec 09)
15 lots of SingPost (Cash) ==>Confirmed dividends of $187.50 (Nov 09)

My stock strategies are as below:
If Singtel reaches $3.50, I will sell 5 lots of SingTel(Cash)
If Singtel reaches $4.00, I will sell 5 lots of SingTel(CPF)
If Singtel reaches $2.65, I will buy another 2 lots of Singtel using Cash.

If SingPost reaches $1.25, I will sell 5 lots.
If SingPost reaches $1.50, I will sell 5 lots.
If SingPost reaches $1.75, I will sell 5 lots.
If SingPost reaches $0.90, I will buy 5 lots.

If DBS reaches $12.50, I will buy 1 lot.

If none of the prices as above are reached, I will keep all stocks for dividends.

For ETF, I have no plan to buy in more or sell away in the near future.

Please take note that I am applying my rule No. 1, which is I do not try to predict the future. So I have planned for both market directions. I am also applying my rule No.3 which is "It's far better for other to buy an overvalued stock from you, than you buy an overvalued stock from other".

My Quotes/Rules of Investment

Rule no. 1: Never predict the market direction.
Rule no. 2: Don't forget the first rule.
Rule no. 3: It's far better for other to buy an overvalued stock from you, rather than you buy an overvalued stock from other.
Rule no. 4: No discipline is the key of losing money in the market.
Rule no. 5: For a wonderful company, be delighted when its stock price falls, be regretted when its stock price rises.
Rule no. 6: Slow and steady will definitely win the race.
Rule no. 7: You can never find it easy to catch a butterfly unless you have a big net.

Investor, Traders and Speculators Charts

Sun Tzu said, "If you know yourself and your enemy, you fight hundred battles with hundred victories." So it is important to identify yourself and other players in the markets before you do anything.

There are basically three types of player in the stock markets. They are the investors, traders and speculators. Because of these different types of player, the pattern of the charts will keep on changing.

Let say there is only investors in the markets and there are no traders or speculators. A chart of a growing company will be simply like the picture above. It is a pure straight line without any noise.

When traders come into the markets, the chart will look like the above. The price is going up and down in a trend. The green dotted line shows the actual growth of the company.

When speculators (who has big amount of money on hand) come into the markets, the chart will look like the above. The price is push up very high by these speculators in order to lure investors or other traders to buy at higher price. Once the bubble is formed and burst, the price will start to drop very fast. It may even drop below the fair value of the company. The red dotted line shows the actual growth (fair value) of the company.

One very good example for speculation is the above crude oil chart. You can see

that the blue oval highlighted portion shows that speculation has started. The price rose from US$80 to almost US$150. But is this the true value of the oil at that time. The answer is no. . After the bubble has burst (see red oval highlighted portion), the price fell rapidly down to about US$40. From about US$150 to US$40, that is more that US$100 drop. You can see that the speculators are very aggressive. If you are not able to value the price of oil, you might buy it during the speculation time at high price.

For a normal investor, we must know that traders and speculators are everywhere trying to earn money from us. It is not necessary a bad thing to have them in the markets. But you must try to protect yourself against them first. In order to protect ourselves, we must know how to value the company. Buy stocks only when the stock price is undervalued. If you do not know how to value the company, you will not know whether you have bought its shares at the high price or not.

Two quotes from Warren Buffett to illustrate my points:

"If a business does well, the stock eventually follows."

"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."

So don't be afraid if you have bought the stock at a low price and it went down further. But make that the company is good, before you buy its shares.

SingPost is a wonderful company to invest in

To me, SingPost is a wonderful company to invest in. It is a defensive stock with good fundamentals and have been giving good dividends in these few years.

The below dividend diagram is what I get from the Singpost Website. You can see that from FY02/03 to FY08/09, the dividend has been increased. Even during the market crash period, the dividend payout is not reduced. If the total dividend for FY09/10 is 6.25 cents, then is yield is about 6.5% (based on the bought in price of 0.95 cents).


I will accumulate more SingPost shares if it happens to drop to 0.9 cents. If not, I will not be buying any more.

Buying stocks based on price and value

Warren Buffett said, "Price is what you pay. Value is what you get."

Sun Tzu said, "The general who wins the battle makes many calculations in his temple before the battle is fought. The general who loses makes but few calculations beforehand."

That is why I always based on price and value and do my own calculation before buying stock See below for the formula that help me to know when to buy stock.


Price is the current price of the stock.

Value can be capital increase or dividend given from the stock. It will be very hard to estimate the capital increase of the stock, but it is easy to identify which are the stocks that are giving regular dividends. I always look for stocks with good fundamentals that give regular dividend even during the recession time. These stocks normally go up and down at a slow rate which is what I like. To me it works like fixed deposit. Click here if you are interested in my choice of stocks/ETFs.

Target return is the minimum amount of return you want to see when you invest in a stock. For example, if you set it at 5%, then every year you will expect to get 5% return from your stock. I will only buy a particular stock when the result of the formula is greater than my target return.

Example 1:
If a stock is giving dividend of $0.05 per year and the current price is $2, then the return will be 2.5%. So if my target return is 5%, I will not buy this stock at the current price.

Example 2:
If a stock is giving dividend of $0.1 per year and the price is $1.00, then the return will be 10%. So if my target return is 5%, I will definitely buy this stock at the current price.

Some of my favorite quotes from Warren Buffett

1)It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.

2)If a business does well, the stock eventually follows.

3)Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years.

4)Only when the tide goes out do you discover who's been swimming naked.

5)Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.

6)We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.

7)You only have to do a very few things right in your life so long as you don't do too many things wrong.

8)Price is what you pay. Value is what you get.