Time to take stock – the half year review

Date: July 22, 2013

We are now more than mid-way through 2013 and it’s a good point to reflect on the basics of investing. How has this year’s performance impacted your portfolio?

2013 started off with the STI at 3201 and to a high of 3454 on 22 May 2013. Today it’s back to the 3200 level. Dividends boosted the total return of the STI to a 0.9% gain in 1H13, after generating a total return of 23.5% in 2012. This brought the average annualised return of the STI including dividends over the past three years to 7.0%.

The five best performing STI stocks in 1H13 were (as at 28 June 2013)

– Thai Beverage (SGX code: Y92, +49.4%);

– SIA Engineering (S59, +14.8%);

– Singtel (Z74, +14.2%);

– Starhub (CC3, +10.3%); and

– Singapore Tech Engineering (S63, +9.7%).

Correspondingly, the FTSE Small Cap Index gained 7.8% in price performance in the 1H13 with dividends boosting the index return to 9.8%. The index, comprising 104 securities has the Top 10 comprising the majority coming from the REIT sector. The 10 biggest constituents of the Small Cap Index account for 32% of the index’s market capitalisation. Compared to the STI in 1H13, the Small Cap Index was less correlated to the FTSE ST All Share Index with more volatility.

So what can we expect the rest of 2013 to provide? While I may leave it to the analysts to provide you with suggestions, I have listed 8 simple investing rules that may prove helpful for your investments this year.

Rule 1 – It’s all about money management. The first and most important lesson is to understand that there are many different kinds of risks with every investment. To invest successfully, you have to respect and continually manage risk. As far as possible, avoid investing with borrowed money and never place all your bets on one investment. Remember that markets usually crash when you least expect them to. The aim is to make sure you are able to stay in the game for the long term.

Rule 2 – Be diligent and do your homework. Many people still buy stocks that they do not have a clue about. In today’s connected world, it is very easy to do basic research on a company on the Internet. Don’t place your hard earned money on another person’s word. Remember the loss will be yours and not his.

Rule 3 – Explain each investment. There are loads of good, well-run companies but not all of them will be good investments. Make sure you have solid reasons for buying a stock and look to invest for the long term.

Rule 4 – Diversify wisely.
Construct your stock portfolio to include companies from various industries to diversify your risks. At the same time, control the number of stocks you own to keep your portfolio from becoming unmanageable. You shouldn’t buy everything you like, only those that you like most.

Rule 5 – Resist the urge to trade. There is a certain thrill to trading in and out of the market. But great stock finds don’t come along every day. More often than not, overtrading becomes a habit that will see you struggling to get out of stocks that were bought on a whim. Even worse, you will probably end up tying up funds on losers and potentially missing out on winners. Even if you must trade, portion part of your portfolio, and do not trade all your investments.

Rule 6 – Emotions and investments don’t mix well. One common pitfall is to let emotions influence investing decisions. While greed and fear are well known culprits of investment loss, this can happen too if you allow yourself to fall in love with a stock and refuse to sell it.

Rule 7 – Learn to cut the losers early. We often see investors, even the professionals, taking profits on their winning stocks too quickly while doggedly holding on to their losers. If you don’t have any compelling reasons for keeping a bad stock, hope alone is not going to stop it from sinking further into the red.

Rule 8 – Prepare a defence plan. During a prolonged bull market, everyone makes money so long as he has the ability to hold on to his stocks. It is therefore easy to forget that the market will ultimately correct or turn bearish. When that time comes, it is always useful to have a plan. For example, draw up a list of the stocks in which you have greatest confidence. Keep these and sell the rest so that you have cash to re-invest at better prices.

While we could easily double the above list, following these 8 basic rules should help safeguard your investments.

Over the years at SIAS, having met with many investors and also helping resolve investor issues, it has been my observation that many do not review their portfolio on a regular and on-going basis. Stock investing requires you to monitor the announcements of the company on a regularly. I have witnessed many miss opportunities not monitoring their investments.

Thus, at SIAS, we have also commenced review of Annual Reports. Up-coming will be the SingTel and SMRT AGMs. It would be worth your while to watch the clips on the Review of the SingTel and SMRT Annual Reports before attending the AGM.

Happy investing.

Richard Chris Dyason

Richard is the General Manager at SIAS and previously a Vice President at SGX. He has been in the financial services industry for over 10 years and has been working with investors on helping them improve their knowledge of investing.