I am a value investor, meaning that I am not a momentum trader. I do not chase hot stock nor hot sector. The trend is your friend does not necessarily apply to me. I tend to buy neglected, beaten down companies (often too early) when they receive minimum attention (lower volume than historical average).
Buffett's word is gospel here: "The less prudence with which others conduct their affairs, the greater the prudence with which we should conduct our own affairs."
- LKS has a similar motto.
And
"Speculation is most dangerous when it looks easiest"
- think how over-confident I was in 2015.....
My primary objective is not to lose money. In tennis terms, i try (am learning) to hit a lollipop just to get the ball back within the lines. Capital preservation (against inflation) is key rather than chasing maximum return.
I don't trade a lot. I want to invest in companies that:
1) Less prone to technology obsolescence and can last a long time with low maintenance. Ideally, if I get knocked down by a bus, my wife doesn't have to worry about what to do with the portfolio. Another advantage is this type of portfolio can leave me lots of time to read and learn. I am learning to adhere to the principle of buying assets where time is my friend not enemy (hence i don't like warrants, or net-net in a sunset industry). I have a tendency to skew to asset that doesn't require thinking too much about exit strategy.
2) I will allocate a a good portion of the portfolio (say 40%) to deep NAV discount companies with low debt, proven management and high quality assets - the Schloss way. The yardstick there is easier to define, and intrinsic value more objectively observable. Company like Swire and Jardine are low maintenance if purchased at a good discount.
3) I might allocate a small portion of the portfolio in beaten down well-managed cyclical companies with very little debt. Exit strategy is needed there.
I do not have a view about market move, nor have a view what's going to happen to the economy. I am learning not to look at the market. OK I admit, it's hard. It's like not opening your Blackberry or Facebook page for the social media junkies.
Risk Management Philosophy
Always be mindful that: "One of the most corrosive human feelings is to sit out and watch other people make money" - Howard Marks
My definition of Risk is not market (move) risk, nor the daily up/down movement (volatility as defined by academics). My definition of risk is the probability of permanent loss of capital such as accounting scandal, chairman disappearing, policy risk, technological advancement that makes a company's product redundant etc.
At my current competency level, I tend to focus on bigger cap companies (although research has shown that small caps make better return in the long run), with a good institutional culture, where management incentive is aligned with minority shareholders, good consistent operating and free cash flow, consistent and growing dividend, and some monopolistic features.
At my current competency level, I am likely to hold fewer than 20 companies and have a cap of 10% in any single company. I might hold ETF as well.
I am aware of the arguments of always fully invested vs holding some cash. At this stage, I am inclined to the latter - meaning that i might hold a good portion in cash (between 5-25% following the wise words from the Intelligent Investor, and the action from Buffett, Klarman, etc). I want to put myself in a position where when market is crashing down, I am still emotionally stable and I still have dry powder to buy.
Always look at the downside first before looking at the upside. Sizing of positions should be a function of the odds and possible damage on the downside. Err on undersizing rather than oversizing - think in terms of the Kelly's formula
FOMO and Over-confidence are two of the biggest risks in managing investments.
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