INVESTMENT Method & Strategy

Below is the investment method./strategy that has worked well for me so far. I will only add to my position if the share price has dropped about 10% lower than my average holding price or recently added price. If the fall is less than that usually I will just sit on the shares and do nothing. This is assuming the fundamentals of the underlying business has not changed.

Value Investment - which is the Best method that works well for you?

I practise this add to position only when it drops 10% lower than my average holding price or recently added price of a particular stock for my leveraged CFD portfolio. Of course, I will factor in whether the market sentiments have changed to a bear market direction. If I feel that it has changed, I will not add any more long positions and would instead convert all my long positions to short positions. This conversion from longs to shorts is based on the market which has convincingly changed direction to a bear market. If it is only a temporary negative sentiments due to certain news which may not have wide ranging impact on global economy, then I will continue to hold my long positions and only add if price drops by 10%.

For others , you may also consider to have a bigger percentage of more than 10%, may be 15-20% if this works well for you.

I suppose this kind of disciplined approach also works for a non-leveraged portfolio. A 10% drop before adding on to position is reasonable especially if the shares were recently bought in and the value investor has already done his due diligence to buy in at a sensible fair price. 

Usually, it is difficult for share prices of a fundamentally good business with strong growth prospects to drop by too large a magnitude.

If share price drops more than 10% from one's average holding price, then the investor must really ask the critical question whether his average holding price was bought too high due to him making a wrong assessment of the business's fair share price he has entered? Or is it suggestive that a bear market is coming and a lot of other shares have also fallen by at least 10% off their recent highest price reached and prices seem to display even more falling momentum? Or is there something inherently wrong with the fundamentals of the business that the investor did not pick up in his initial assessment before he entered the stock? Or is it a temporary issue that the business is facing which will cause a temporary deterioration in business fundamentals but it should recover in due time?

Weightings of the individual stocks in one's portfolio is important or as one calls it position sizing. The highest weighting is always given to the most promising stock among the other stocks in one's portfolio. Then, we scale down accordingly until the lowest weighting goes to the least promising stock in one's portfolio. Sometimes, recently bought in stocks may become the least weighting in the portfolio. It is alright to be if the investor still needs time to monitor the progress of the recently bought stocks in his portfolio before adding to his position in it and thus increase it's weighting against other existing stocks in his portfolio.

My suggestion is to have a core portion of one's portfolio into 2 to 4 stocks which takes up about 50% of invested capital in one's portfolio. This core portion must be really the best of the best stocks the investor can possibly stock pick. Then the rest of the 50% of invested capital can be held in 5 to 11 stocks which makes up the satellite portion of his portfolio. Then, just add to or subtract from positions of individual stocks as and when necessary to readjust portfolio when fundamentals of individual stocks and their future prospects have changed. Or if there are even better stocks outside of one's portfolio to consider, one may exit certain stocks in one's portfolio and enter the new better stocks.

In any case, try not to invest in too many stocks. I find that anywhere from 7 to 15 stocks in one's portfolio is good enough. If the investor is very confident and experienced with proven track record, even concentrating his funds in 7 stocks is alright. 15 stocks I feel is about maximum as it is tough to manage more than 15 stocks in a portfolio to have to keep track of their announcements, news, financial reports and so on. Imagine reading 15 annual reports every year and thinking upon 15 stocks. It consumes a lot of time and effort and many of us are working adults with families to take care off. Unless one is a full-time investor. If not, do not try to be a superman managing more than 15 stocks. quote from jeremyowtaip.

If really want to gain diversification without much time and effort to monitor the investment, investing in one or few good low cost index funds which track S&P 500, DJIA, NASDAQ, Russell 3000, HSI, China A50, CSI 300 will be good enough. 

These are good market indices of the world two largest economies which should continue to do well over the next decade (barring any bear market coming). But if we stretch it longer to more than a decade, then "yes", these indices will still likely do well over the long term.

The amount I average down each time can vary. There are no fixed rules I stick to.

 It is based on my experience and also how much I understand about the particular business. In my mind, I would already have ranked the various stocks in my portfolio from the best to the least. If the stock that belongs to a good ranking drops in price such as those in the core portfolio portion, I may add on a greater position each time it's price drops. However, if the stock belongs to the not the best stocks in the satellite portion of the portfolio, I may add lesser to their position each time their share price drops. This is just a general guideline.

I also use a lot of my own experience which have been built up over time when it comes to averaging down as I will have many points of consideration before I add to and how much I add to my position in a stock. The whole idea is that eventually the better stocks will end up with higher weight-age than others. This process of portfolio management is for my non-leveraged portfolio. 

For a sound fundamental counters , I would usually stick to blue chips stock such as the follow listed counter:

1. ST Engineering.

2. SingTel

3. Wilmar

4.Kepcorp

5. DBS

6. OCBC

7. SATS

8. Genting Sing

9. Haw Par

10. Ascendas Reit

11. Sembcorp Ind

12. CMT

13. ComfortDelgro
14. STI ETF

Not a call to buy or sell.

please do you own due diligence.