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Wednesday, 25 March 2015

In Investing, ACCOUNT SIZE really MATTERS! Why???


Someone asked me these questions:

1) You kept mentioning about

"In investing, ACCOUNT SIZE really MATTERS!"

What's consider a sizeable account size?

$500k and above?

2) Quote,

"It took me 23 years to ACCUMULATE SIZE-ABLE capital to have Real impact on net worth,
Another 16 years of real SOAKING myself in the world of financial news over day and nights."

That means you conceive the plan to get rich at age 20?
But why wait for 16 years later? Aren't there bulls and bears in between?

Excessive fears and greeds that hinder your plan towards earlier success.

Uncle8888's post edited version of  this reply:


Our account size? How much is enough?
Our final objective or goal in long term investing is to have enough cash flow from our financial assets to replace the loss of earned income from our human asset when we retire or choose to retire earlier than Singapore official retirement age at 62/65
How much is enough for this cash flow? $3K, $4K or $5K?
A more realistic or practical way to know how much is enough is to know our historical household expenses or  70% - 80% of last earned income as most financial planners will recommend.
Once we know how much is enough then we can estimate the our account size to sustain this level of cash flow across market cycles.
(1) How much portfolio RETURN can we reasonably expect if we are educated and active retail investors?
5% to 6% is achievable for most of us if we are active in tracking closely our market and companies that we have invested. We should be able to win more than our losses. Dividends will be of great help.

When we are still growing our portfolio we should try to focus more on growth dividend stocks.
(2) We must be aware of market cycles of bulls and bears. We want to ride the market cycles to grow our portfolio so we CANNOT afford stay 90-100% invested just for dividends or cash flow. 
 
We will need to slowly liquidate 30% to 40% of our portfolio as war chest and we can be waiting for years. We will need some growth in our portfolio to offset future inflationary impact to our cash flow. 
 
Our cash flow must also be able to grow higher with the injection of war chest during bear market. Our injection must win more than losses; otherwise we are doom.
(3) After leaving that amount as war chest, is the remaining size of our portfolio still be able to generate our desired level of cash flow at 5% to 6% return?
If the answer is no; then we will need to increase our account size as current account size may not be large enough to be sustainable across market cycles.

On question for
 
"It took me 23 years to ACCUMULATE SIZE-ABLE capital to have Real impact on net worth",
When I got very serious to invest in the stock market to get out of rat race after reading Rich Dad. Poor Dad. At that time, I strongly believe it is possible to achieve as I have already accumulated sizable account size from past 23 years of cash saving and CPF investment account to slowly deploy my investing capital till when Sep 11 WTC attack happened.  I still have nice war chest to deploy in the stock market.
 
If then my account size was not large enough, I could have already used up most of my investing capital before WTC event. I would not have enough investing capital or war chest to buy Keppel corp, SIA, SIA Eng, ST Eng, etc. 
 
May be I was lucky to meet such market opportunity; but most important is that I still have nice war chest to buy during that crisis. 
 
But, "unfortunately" or most likely it is my stupidity in 2007/early 2008 and caused me me to be too low in my war chest in early 2009. By Mar 2009, my balls has shrunk too much and became too fearful to take advantage of that market crisis. The fear of STI at 1,200 became too real!
 
This I shall not repeat it in the next bear.

On question for ..

That means you conceive the plan to get rich at age 20?
But why wait for 16 years later? Aren't there bulls and bears in between?

Excessive fears and greeds that hinder your plan towards earlier success.


When I personally witnessed my close relatives almost went bankrupt in the stock market during 1998 AFC; would anyone think that I would not be affected by this event?  
 
In fact, my wife forbid me in investing stocks. Stock market is highly dangerous place to make money? Right?
 
Recently; I have been probing those colleagues who are in their late 50s and early 60s why they are not active in the market. You can read those recent posts.


9 comments:

  1. The relationship of account size and risk tolerance is inversely related. As my account size grows bigger, my risk tolerance gets lower. Care to offer a reason why I behave this way?

    ReplyDelete
    Replies
    1. One of the reasons is after you have found your pot of gold, you don't have to take the same "kinds" of risk to get more wealth. So you must know your huddle rate of market returns for you now may be 5% instead of 8% to 10% to remain FF. Another words i think as long as you can beat the inflation rate of the day, you can maintain your FF.(aka capital can even to grow a bit).
      My 2 cents.

      Delete
    2. I think this is normal retail investors' behavior.

      My balls also shrunk smaller after Nov 2008. We may have to remember 3Ms in investing - Method, Mind and Money Management.

      With larger account size; it may be easier with our Money Management. We can choose to liquidate part of our portfolio holding as war chest. A larger war chest may have better chance of hitting our next few higher growth dividends stocks or higher yield on cost blue chips as market continues to slide further. At same time, our remaining Portfolio may still be able generate our desired but at reduced dividend income while we are waiting. There is no free lunch. We have to decide that trade off point when we begin to feel feel our balls start shrinking.

      Surplus cash as part of our portfolio management will definitely help to ease our portfolio volatility.

      Cash is rotting or Cash is King? Let the hindsight tells us!


      Delete
  2. CW
    can tell me what was the rough PE of Keppel corp, SIA, SIA Eng, ST Eng during GFC?
    was it very bad? because many companies making losses

    so during crisis we just buy the blue chips ?

    ReplyDelete
    Replies
    1. I don't actually use PE.

      Actually, my blue chips made me money and then I lost part of winning money back to other chips

      :-(

      Delete
  3. during big bear time, it will be hard to push the buy button

    eg now Noble, a blue chip, has fallen quite a lot about 65%(1.48 to 0.90) and it was making $240 million loss in last quarter Q4
    so will u close both eyes and buy?

    ReplyDelete
    Replies
    1. Nobel PE (Adjusted)

      YR.....08.......09.......10.......11........12.......13........14
      PE....7.6......7.2......7.9......11.7....11.3.....22.6.....44.7


      The company bottom line is deteriorated despite the top line improves.

      Is the current cheap now?

      I don't think so.

      Delete
  4. Thanks ray
    Think it's not a good buy even though price has fallen a lot!

    ReplyDelete
    Replies
    1. Read CW Return of King... :)

      http://createwealth8888.blogspot.sg/search?q=return+of+king

      Delete

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