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Investor psychology and beating our fears.

This blog is a follow up to an earlier blog titled: Increased investment in Religare Health Trust by more than 150% . This is in respons...

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"E-book" by AK

Second "e-book".

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Is it bad to receive regular dividends and to sit on cash?

Sunday, June 28, 2015

Many times, I have been asked what is the yield on my total portfolio. I have never bothered to answer the question for various reasons and because I don't ever answer such questions, I don't bother to find out what the answer might be.

I know more or less what are the dividend yields and distribution yields of my various investments in my portfolio but I have never really calculated what is the average yield.

A friend recently told me that the average yield of my total portfolio including cash must be much lower and he wondered if I was beating some kind of benchmark. I could see where the conversation was going and I gave a loud sigh.

I know there are some people who are like my friend, who are obsessed with measuring their performance and worried that, if they hold too much cash, they might under-perform the benchmark which in many instances is the STI. 

So, consequently, they are constantly on the lookout for assets to put money into in order to prevent their portfolio's performance from declining. It sounds stressful and I am stressed out just imagining this.




I am pretty simple minded when it comes to investments. I use some common sense and ask some questions which I think matter in that investment. If I am satisfied that I am not overpaying and the stock is likely to do pretty well in future, I buy some. Regular readers would know what I have been nibbling on in recent months.

Yes, some of the nibbles have been poorly timed but we can rarely buy at the lowest prices or sell at the highest prices. We can use some technical analysis to provide insights but if we did buy at the lowest or sell at the highest, we were lucky. I believe in holding on to investments that have good bones. Anyway, I sleep well at night because I "eat bread with ink slowly". Remember?

"When stocks are attractive, you buy them. Sure, they can go lower. I've bought stocks at $12 and went to $2, but then they later went to $30." Peter Lynch.


"I buy on the assumption that they could close the market the next day and not reopen it for five years." Warren Buffett

Frankly, if prices did not come down, I would not have nibbled at anything. I would most probably just be growing my war chest.

Why should there be an urgency to buy something just because cash is going to be a drag on the overall performance of our portfolio? 

Is the overall performance of our portfolio so crucial? 

It could be to some, I guess.




I told my friend I am probably about 70% to 80% invested. So, I have 20% to 30% in cash. I don't know the exact percentage because I don't measure but it is about there. My investments are generating income in excess of $100,000 a year for me. Again, how much is it exactly, I don't know. I will know at the end of the year.

Even if I were to retire from active employment and not have an earned income, I guess I would be quite comfortable living off just a portion of my passive income. The rest, I could invest with when opportunities present themselves. If there should be nothing I fancy, I would just continue to build my cash position. Even if my cash position should be 50% or more of my portfolio, it wouldn't bother me.

AK is the proverbial frog in a well. There are many things in this world AK doesn't understand but AK knows that he feels good when he has more cash in his bank accounts. 

I am not a professional fund manager who has to answer to unit holders who might ask, "Why are we paying you just to sit on so much cash?"




Well, I understand that it could be that my friend and others like him imagine themselves to be pseudo professional fund managers. I understand that but it doesn't mean that I have to be like that. I am just a regular retail investor.

I would like to end this blog post with something Charlie Munger said before but it is probably a bit overused in my blog by now. Hint: It has something to do with some character sitting on something. So, I will end with a couple of quotations from Peter Lynch instead:

"In this business, if you're good, you're right six times out of ten. You're never going to be right nine times out of ten."
"If you can't find any companies that you think are attractive, put your money in the bank until you discover some."


I am not a professional fund manager and thank goodness I am not or I might be kept busy answering calls from irate unit holders. 

"Whose money is it anyway?" 


(Oops, I think that sounded like a question from a member of the opposition in local politics. Getting a bit mixed up in my old age. Cham.)


Related posts:
1. How did AK create a 6 digits passive income?
2. How did STE married with kids retire at age 44?
3. 5 revelations from a regular retail investor.

12 comments:

apex property investment said...

It's fun to think about for beginners going into investment, once it rolls... It's bothersome to keep calculating yields. (:

AK71 said...

Hi Apex,

It could indeed be the case but I think I just got lazy. I am naturally a lazy guy. Bad AK! Bad AK! -.-"

thomas tan said...

Wah! if your yield is 10% your stock portfolio is 1 million! And you have 200 to 300k cold hard cash. I shall emulate you and hope in 25 years I have similar returns. Truly inspiring!

AK71 said...

Hi Thomas,

I am sure if you set your mind and heart on doing this, you will do better than me. Many have done it before. Some have shared their stories with me while many more have not. ;)

Singapore Man of Leisure said...

LOL!

Bad AK!

Lazy AK!

So you are not into precision in 2 decimal places ;)


You are making "agar agar du hor" guys like me look good!

Ha ha!

Matthew Seah said...

Hi AK,

There are worse situations than drowning in cash and sitting, sitting, sitting. I remember when I wasn’t awash in cash — and I don’t want to go back.
— Charlie Munger

Don't have to use the same character quote de..

Matthew

Rebel said...

Nevermind the numbers. Remember your favourite charities this year & the 3x tax incentives.

AK71 said...

Hi SMOL,

Alamak. Simi precision? Sounds like engineering. I am Arts student hor. :(

I like "agar agar" a lot, especially the purple color ones with a layer of coconut milk. ;p

AK71 said...

Hi Matthew,

Hahaha... Same same but different. This one is lacking a reference to investing, more about personal finance. That's my feeling. Thanks for the nudge. ;)

AK71 said...

Hi Rebel,

Oh, for sure, we must not forget those who need a helping hand. :)

The tax incentive is very attractive this year too. :)

TG said...

I was once in the situation of your friend. I was hounding my financial advisor to invest all my cash. That was a big mistake. My advisor advised me to wait but I was impatient to invest all those idle cash. As a result I went to another fund. Guess what, I lost 40% of what I put in and it never quite recovered. Important lesson - never worry about too much cash in the bank. Wait for the right opportunity. It could be one year or even 2 years. It was 2008 when that happened. If only I have waited one short year...I will be sitting on a whole pile of cash.

Lim LS said...

I remembered a while back I torn apart on how much cash I should sit on and how much cash I should stay invested. At that time, I was around 75% in stocks and 25% in cash. I was too eager to grow my money and was hunting high and low for a good stock to invest the rest of the 25%. I was even contemplating on some stocks that are more speculative in nature and those stocks normally will not even enter my radar in normal circumstances.

Luckily before I buy these stocks, an "old bird" give me an advice.

"There is no need to maximise your potential gain. Don't force it"

After that, I woke up. Immediately deleted away those slightly speculative stocks watchlist and continue to monitor my potential blue chips for opportunity to buy.

Currently I am sitting on around 40% cash. But even so, I am no longer troubled and have no problem sleeping even with this much money idling. That is because;


There is no need to maximise your potential gain. Don't force it :)


P.S. It is not really idling as they are earning 2.2% in OCBC 360 account. Not a lot but at least still growing though it lag behind inflation by a little bit.

P.S.S. OCBC needs to up the bonus interest to be applicable to a larger amount. Current it only apply to first 60k. It is troublesome to have a few accounts in order to maximise interest. Lol

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