Thursday, September 4, 2014

My Investment Strategy

I am not a financial guru or a wall street hot shot. I wish I am, I have so much to learn and I treat everyday as an opportunity to learn thru reading books and personal financial blogs to pick some tips here and there, and today is my turn to share my little knowledge and the basics of investing. These tips are not in order and I'm still improving my writing skills.

Save
Save you money. How can you invest if you don't have money in the first place. The more you save the more money to grow your investment.


Read
Read books and financial blogs. If you think you are going to be the next Wolf of Wall Street you are making the biggest financial mistake of your life. Learn from books and apply is to your life. Read personal finance blogger and learn from their experience and mistakes. Learn from your own personal mistakes. There is no better teacher than experience but you have to read first before testing the water.

Diversify
Stop looking for the next Apple or the next Google. Do not put your money in one company. The best defense for your investment is to diversify. Pick the cream of the crop investments, there are so many choices but pick the right one. It is ok to speculate sometimes and it is not illegal but if you are going to ask me to invest on say TESLA or JOHNSON&JOHNSON I'll pick the latter. Tesla has a bright future don't get me wrong and its CEO Elon Musk is amazing CEO but given their tack record I'll put my money on JNJ. Start with the DIVIDEND ARISTOCRAT list. I truly believe that each american should own Johnson & Johnson, Exxon, McDonalds, Chevron, Procter and Gamble, Coca-Cola, Walmart, AT&T, 3M. These are all members of the DowJones as well, entry point is important too. Start building your portfolio on these must own stocks then look else where once you build your foundation. Other investments such as real estate, bonds, mutual funds, 401k, IRA are must haves to. Real estate needs a lot of capital and it can wait especially right now the market for it is so high again.

Dollar cost averaging (DCA)
Im sure you heard of the phrase "be fearful when others are greedy and be greedy when others are fearful" by Warren Buffett. My August Purchase shows that I am practicing what he preached, I doubled up on my monthly purchases during the dip. Right now the market is in an all time high again (DOW, S&P) and everybody is greedy, I will be back on my normal purchase as I don't want to miss out. But for me DCA means invest your fresh capital on a regular monthly basis and take advantage on the occasional sale that Mr. Market offers.  I have to admit its hard to see your portfolio going down on value whenever the market is depressed and I panicked during the crash of the recent recession but before I didn't have the knowledge I have right now. I took out my 401K during that time, I paid a hefty fine due to early withdrawal and taxes. I was ignorant back then, I didn't read, I wasn't saving. The people who invested on stocks and real estate during that period made a lot of money. I wish I did, its hard and it takes a lot of guts and knowledge to do it. Thats why DCA is a good method of investing regularly for we don't know when is the next bear market and the next bull market but once the bear awaken, we have to be ready to deploy fresh capital to work!

Analyze
Be familiar with the terms price to earning ratio, debt to equity, revenue, cash flow, free cash flow, dividends, market capital, etc, etc... Learn how to analyze financial statement and income statement. Read the company investor relation website. Analyze the company performance history and you can make an educated assumption (I said educated assumption as nobody can see the future) on where it is headed and what the price to pay for the company you are searching for. READ. If this is all too much for you I suggest VANGUARD mutual fund/etf. They are low cost and have beaten the performance of most major etf's.

Dividend Growth Stock Investment
Personally this is my favorite over mutual fund or other growth stocks like Apple, Tesla or Google (although they are great companies). Ill say 90% of my investment belongs in these category, matured company that pays dividends on a regular basis and increase their payout higher than the rate of inflation. The longer the dividend history the better such as Johnson and Johnson, Coca-Cola, Procter and Gamble, 3M, etc. But look out for an entry point you are comfortable with based on your analysis. I've been wanting to buy 3M but I am not comfortable paying at this P/E and the current yield on cost. I've been waiting for an entry point I'm comfortable with and if that doesn't come, thats fine with me, at the mean time I will search for other company that  has cheaper valuation to put my capital to work.

Dividend Reinvestment Plan (DRIP)
All the dividends gets reinvested to the same company that I own, in short I DRIP. Im in the accumulation phase right now, but once I reached my set amount of investment goal (more about this topic on my future post), I will stop DRIPing and use that money for my expenses. The moment I stop DRIPing is the moment I am financially independent.

So there you have it, I'm sure I missed so much more stuffs but we are here to learn from each other. I hope you learn some few tips here and there and Im sure that most of you guys know what I'm talking about and bored to death what Im saying :) any suggestions, comments and new tips for me, please feel free to write it down on the comment section.

2 comments:

  1. All great points. I like the DCA approach the most as it forces you to follow a plan and not panic if a holding of yours suddenly drops. If the company is still great and your investment thesis has not changed just hold on to your shares and/or buy more at lower prices. DCA is all about not panicking. Thanks for sharing.

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    1. Thanks for stopping by Keith. Yes I like DCA too, as it allows us to purchase more shares of our existing holdings creating more flow of passive income. We can never time the market and DCA is the perfect tool of 'untiming' the market. (Im not even sure if thats a word lol) .
      Take care!

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