Here's How a Full-Time Singaporean Investor Manages His Stock Portfolio and Finances (Part 1)
What does the term “full-time investor” conjure up in your mind?
Probably someone with three Bloomberg terminals, two smartphones, and a handful of clocks with different time zones?
That’s certainly not the case for this full-time investor, Wan Hsin Hun.
I’ve known Hsin Hun for the past 10 years and he never fails to enlighten our group of friends with his nuggets of wisdom on investing and life in general.
Recently, I decided to pick his brain just for Seedly readers like you, since there’s interest in the topic of full-time investing from our community.
Hsin Hun and I discussed topics such as what he looks out for when investing in companies, how he made the transition to being a full-time investor, tips for aspiring full-time investors, and how to think about managing cash flow without a steady stream of income through employment.
There are lots to soak in. So, if you would like to return to this article later, you can bookmark it.
TL;DR: Conversation With a Local Full-Time Stock Investor (Part 1)
Here are some highlights from the first part of the interview I had with Wan Hsin Hun:
- “A prepared investor who starts later will be more successful than an unprepared one who started earlier but keeps trying without success.”
- “Prospect, management, price, yield, and cycle are crucial criteria in my stock selection.”
- “We want to own businesses with their best days ahead, businesses well-positioned to benefit from unavoidable megatrends.”
- “Dividend growth leads not only to higher investor income but elevates the stock price, resulting in higher total investor returns.”
- “Recovering our costs through dividend payouts, while also reinvesting those payouts anywhere, even as the stock appreciates, is one of the best ways to invest.”
- “Yield can generate a continuous cycle of payout reinvestments into yield-giving stocks for even more yield. In a way, it’s a gift that keeps giving.”
- “A stock’s highest and lowest price points are reached not when its fundamentals are strongest or weakest, but when sentiment surrounding it is most optimistic or pessimistic.”
- “When in a trade dilemma, I go with the decision of least likely future regret.”
- “The stock market is extremely competitive and forward-looking, moving six to nine months ahead of the real economy as it prices in future events.“
- “Market crises – not necessarily economic ones – are screaming-buy windows of opportunity.”
- “Good entry points can be when troubling news updates no longer prompt major sell-offs.”
- “Staying invested is a decisive determinant of returns.”
- “We must avoid anchoring; we should feel fine about adding to a position at appreciably higher prices…”
- “A group of skilled investors can draw varying conclusions from just a set of financial numbers alone; much is subject to investor interpretation and judgment call.”
- “In durable equity investing success, we need not be extremely smart, but we have to be unrelentingly disciplined. The rush for faster riches has undermined many a portfolio and money management career.”
- “It’s often that people either lack money or time. So having both is a true luxury.”
Sudhan: At what age did you get started in investing?
Hsin Hun (HH): I started active equity investing at age 30.
But before that, I was investing in myself and getting prepared, which I wasn’t aware of until much later.
Extensive reading, detailed observations, broad experiences, cultivating emotional and financial discipline and a habit of long-term planning and saving, and getting used to making choices that don’t go with crowds and fads, were such unknowing preparations.
I must add that starting investing early is great for compounding gains, but starting early without enough knowledge, discipline, or guidance can be self-defeating.
Any heavy monetary loss for a beginner isn’t simply about losing money and the time used to save up the sum, but losing confidence in future financial investing.
Many who suffered crushing disappointments early on in an asset class tend to swear off it and wouldn’t touch it again no matter how attractive the opportunity. They’re likely to move on to another asset class or simply park their cash in the bank.
A prepared investor who starts later will be more successful than an unprepared one who started earlier but keeps trying without success. To keep trying without success is very costly in money, time, and confidence. So between starting early and starting prepared, the latter rules.
Sudhan: Starting early is important, but more important is starting with the right knowledge.
How did you get interested in investing and who inspired you to get started?
HH: The key reasons that drew me to investing were:
- Paltry bank deposit rates,
- A desire for business ownership without dealing with operational and management problems,
- Realising the convenience and power of public equities in building wealth,
- Seeing the mind-boggling potential of compound interest, and
- Discovering the fun of making deals and testing my views in the stock market
The list of those who inspired or influenced me is lengthy, but my mother certainly was instrumental in getting me to open my CDP and trading accounts and explaining the basic technicalities of being in the market.
I also witnessed the compounding effects of her past endowment policy. I was to lead her and the family in stock investing later.
Sudhan: Mothers are true heroes. My mother had a huge part to play in cultivating my interest in investing as well.
The next question is, how do you choose the stocks to invest in? What are some strategies that you can share with our readers?
HH: Prospect, management, price, yield, and cycle are crucial criteria in my stock selection.
Another way to put it: right business, right people, right price, right yield, and right timing.
Being in the right business, one with promising prospects is of paramount importance.
We want to own businesses with their best days ahead, businesses well-positioned to benefit from unavoidable megatrends.
A business in a sunset industry would be struggling to survive, much less grow. No amount of management brilliance and effort can swiftly reverse a company’s fortunes if its main business is structurally declining.
And if it is deeply indebted without alternative revenue, then there’s little left of the investment that equity holders can salvage, especially when creditors get paid before equity holders.
Struggling businesses can be deceptively cheap, luring some investors into thinking that they found an incredible bargain. Severe price dislocations normally occur in a broad market crisis that isn’t stock-specific, when every stock is battered. So an unreasonably cheap one in a normalised market may well signal its heightened risk. Or its possibility as a value trap.
Sometimes, struggling businesses, notably those undergoing a cyclical disturbance, can recover well. However, we have to judge if that’s the case or is it in structural decline and weigh the opportunity costs of hanging on for long, unknown periods with negative or no returns.
Next, having reliable management is critical.
Company statements are only as accurate as the management wants. We want owner-managers with integrity, people we don’t constantly have to doubt their trustworthiness and fair treatment of minority investors. Their integrity is vital if we are to entrust significant sums with them for long.
Moreover, they have to be enterprising enough to keep growing the company and conservative enough not to overstretch its resources, take on inordinate debt, or even jeopardise its long-term value and survivability. They need to prepare the company for the future without being reckless or overly risk-averse.
Those at the helm also drive company culture and decide business strategy. There are once-great companies that have fallen hard on the wrong strategies, never mind their market leadership, competitive advantage, goodwill, or brand cachet.
On the other hand, tiny companies have thrived in very crowded, fiercely competitive arenas and grew into market leaders. The people in charge, who adopted the right or wrong strategy, made the difference.
To see how acutely important management is, notice how companies fare better or worse following a management change, or the deterioration of some companies after the founder leaves. Talent and competence matters. The saying often rings true for investing in companies: bet on the jockey, not the horse. The same outfit under different management can yield wholly different results.
Some owner-managers can glibly promote sub-par companies, while others with enviable businesses may be less PR-savvy or inclined to stock-promote. In the final analysis, the right people steering our investments are best assessed through a track record of demonstrated reliability as honest and capable asset stewards.
Right price and yield
Dividend yield is an indispensable criterion, representing regular, recordable, and detachable investor gains beyond stock price returns alone.
It also strongly indicates and influences many consequential aspects of the stock: sustained distributions put a floor under the stock price, showcase the company’s financial robustness, and attest to the owner-manager’s profit-sharing consistency and intentions.
Even throughout the worst crises, an unbroken dividend payout history further underscores its business resilience, while surplus cash distributions can highlight business confidence. The level of yield compression also reflects market expectations of its business going forward.
Beyond the payout consistency is the capacity to grow dividends.
Dividend growth leads not only to higher investor income but elevates the stock price, resulting in higher total investor returns. It also means more cash received to reinvest anywhere for even more gains. Any dividend cut, nevertheless, also means a lower income and stock price.
Stock prices don’t affect payouts, but payouts influence prices; management can’t control the stock price, but they can control the payouts and influence stock movement.
Yield-on-cost is of prime importance to long-term investment, including for owner-managers holding their stock since company inception.
Yield is a function of payout against price; the investor who bought at an earlier, far lower price could be enjoying an eminently higher yield than the current yield suggests, both due to the lower price paid and any dividend growth.
Between a lower cost price and a dividend raise, a payout increase is more effective at creating a higher yield for the investor than purchasing the stock at a lower price. So the capacity to hike payout matters more than a lower price locked in for the stock.
Payouts also let us recoup our outlay in a stock. They help lower our costs, which is especially helpful if we overpaid. Recovering our costs through dividend payouts, while also reinvesting those payouts anywhere, even as the stock appreciates, is one of the best ways to invest; it’s also ideal that a stock’s hefty cash payouts are from strong cashflow or high cash levels and not a consequence of asset disposals, steep borrowings, ignoring high depreciation, or exploiting fair-value accounting gains.
Cash payouts are the principal compounding tool, allowing reinvestments into the same counter or other dividend-bearing counters.
We can sell a share only once but keep gaining from its distributions if it keeps paying as we hold it. Yield can generate a continuous cycle of payout reinvestments into yield-giving stocks for even more yield. In a way, it’s a gift that keeps giving.
Yield affords a way to take profit without selling. Without yield, we’ll always wonder when to close a position, as that’s the only way to realise gains. And we can only await a stock rebound or cut losses if there’s no payout to mitigate losses. In no other asset class except real estate can we conventionally obtain both yield and growth simultaneously, including cashflow for fresh investments. And stock payouts can include non-cash ones like in-specie distributions and bonus shares. Yield is a hugely advantageous feature for generating gains and gauging a stock.
Cycle includes that of the broad market and that of the specific sector; they may or may not coincide. A stock may pass muster in most criteria, but buying or selling at the wrong time curtails our returns and can even result in losses.
Timing, as the adage goes, is everything. It may not indeed be everything in equity investing, but we should be mindful that sentiment plays a disproportionate role in the price in every market euphoria and panic.
A stock’s highest and lowest price points are reached not when its fundamentals are strongest or weakest, but when the sentiment surrounding it is most optimistic or pessimistic.
Also, while its fundamentals can be appealing during our buy-in, there’s a risk of the market or industry cycle turning against us shortly after. A long industry boom may have made the company’s finances and growth momentum look terrific for its price.
Even worse, its tumbling price in a downcycle can make it look cheap compared with its trailing financial numbers achieved during a boom; its business downturn would only become apparent in subsequent quarters of financial reporting. And if its payouts are slashed on receding earnings, its stock price would be weighed down even more.
On the flipside, a laggard counter could be recovering from a prolonged slump, though its trailing metrics still mirror its underperforming period, giving scant confidence to prospective investors. Its price would have taken off well before consistently good numbers are reported.
For evaluating stocks in the doldrums, the enormous difficulty is concluding if it’s in a lull or if its best days are over – in which case, leads us back to the above first criterion of prospect.
Besides the above investment criteria, I’ll categorise a stock by business type:
- Project-oriented/order book-based,
- Tangible asset-heavy,
- Investment holding, or
- High operating cash flow.
In terms of preferred company qualities, they are:
- A consistently high operating cashflow one, likely an operating company, with substantial recurring income,
- Good return on equity,
- Reasonable margins, and
- Low borrowings.
Even better if, on top of these, it has maintained its payout even during crises and grew it over time. Increasing company cash levels even after paying out dividends is another impressive quality.
In addition, being an asset-light, people-light, scalable business, with a model that’s efficient and simple – needing no complicated process to make a profit compared with many other businesses, would enhance the stock’s already-immense promise.
Nonetheless, I do own stocks that are asset-heavy, considerably geared or are holding companies. But I still focus on cashflow strength and proven business resilience in the face of economic shocks.
I maintain a diversified stable of businesses across industries, geographies, and company sizes for my portfolio.
There are core stocks with higher portfolio weightings or those that I’d accumulate over time. They are dependable, safe haven stocks that I’m convinced will still be around in the next decade or longer, with gradual growth, good yield, and a moderate risk profile.
And there are peripheral ones of smaller stake values that I own for various reasons: getting a foot in the door, learning about the business and people, following the story, or even just to feel good about owning them because I use their goods or services or that they are part of some institution.
Diversification isn’t just for spreading risk, it’s also for capturing gains.
There are always unexpected, positive surprises, such as bumper payouts, sudden price surges, and generous buyouts. A company could also be involved in a major new deal or product launch, or have an existing product that’s suddenly in vogue.
My occasional divestments are to redeploy funds to more compelling opportunities, cap the opportunity cost of holding on to counters with a dim secular outlook, accept takeover bids, or book partial profit as a stock soars too far ahead of fundamentals in a very short time.
When in a trade dilemma, I go with the decision of least likely future regret.
There’s the buying dilemma, which is buying the stock and it drops further or not buying it and watch it rebound. And the selling dilemma, which is selling the stock and it climbs further or not selling it and watch it drop.
The choice that’s likely least regrettable, wins.
Nonetheless, the beauty of equities is that we can buy or sell in bits over time, without committing a large position to a price at a go, allowing us time to wait and see.
Capitalising on the stock market
The stock market is extremely competitive and forward-looking, moving six to nine months ahead of the real economy as it prices in future events.
Published economic data, on the other hand, is about the past. This yawning chasm between the two causes many people to miss out on the lowest equity prices in an economic crisis as they await clear economic recovery data before buying.
But market crises – not necessarily economic ones – are screaming-buy windows of opportunity. We can start buying in bits and small tranches if we’re unsure if things will get even cheaper amid a market correction or crash.
It’s far more difficult to bring ourselves to start buying in a market rebound later, when we’ve witnessed sharply lower prices only days or weeks earlier. It’s always easier to average down than up.
Good entry points can be when troubling news updates no longer prompt major sell-offs; that’s when the market has already factored in how alarming the latest news is. Only news that’s far worse than before has the shock value to spook the market into settling much lower after already plummeting.
Disbelief abounds when stocks bottom out from a crisis and rise precipitously. Those not invested can barely gain from the rally, as the rebound speed, limited stock liquidity, and confusion over the sudden surge will deny latecomers a good position.
Staying invested is a decisive determinant of returns. The biggest price gains of a counter – in most years – are made in only a couple of months each year and not necessarily in consecutive days or weeks.
And it’s the subtle inching up of the price over many trading sessions that are easiest to overlook, easily and wrongly dismissed as price bumps that will soon ease in the next few sessions. That’s how those staring at the boat can miss it.
Unremitting focus on individual counters and their business, rather than broad market swings – in times of economic turmoil or not – is the way.
Grim economic reports and interest rate talks tend to overwhelm news of flourishing business sectors and stocks most of the time. Some counters are less prone to economic disruptions and/or are less sensitive to market gyrations anyway. In the end, it’s the individual counter, not the entire market or economy that we’re targeting.
We must avoid anchoring; we should feel fine about adding to a position at appreciably higher prices as company growth and inflation would mean that a higher current price can be as cheap as a decidedly lower price in the past.
It always takes time for a new, growth-supported price to sink in and find acceptance before investors wouldn’t call it expensive. Also, investors ought to know that a benchmark index doesn’t plunge below the trough of a previous market collapse that happened a decade before or longer.
Important pointers for equity investing
The most important equity investment decisions are qualitative rather than quantitative. Yet, quantitative reasoning gets the spotlight, as numbers make for easier comparison and straightforward valuation model inputs.
What’s subjective and uncountable, like management trustworthiness, bench strength, business strategy, innovation drive, company culture, customer opinion, shifting trends, industry cycle, and market sentiment, are often eclipsed by the hunt for handy numbers to crunch. Pivotal areas that call for qualitative judgment are what no stock screener reveals.
In a similar vein, equity investing is part art, part science.
Those overly rational don’t do as well as they should. Sheer logic and neat measurements, for one, miss out on unfathomable owner-manager and market behaviour, as well as all kinds of business contingencies.
Equity investing is an inexact science. A group of skilled investors can draw varying conclusions from just a set of financial numbers alone; much is subject to investor interpretation and judgment call.
At the same time, equity investing is both an intellectual and an emotional exercise.
Some good stock pickers drastically limit their returns not by choosing the wrong stock, but by choosing the right stock and not doing what they know they should.
An inability to bring themselves to buy or sell when it is time and being unable to sit tight as the stock continues delivering, are some examples.
Or, they could liquidate a position on the slightest bad news or close their position on just modest gains, thinking that they can re-enter the stock at a lower price. Someone else investing in the same counter, on the other hand, could see vastly superior returns due to a difference in the emotional discipline.
We need not be extremely smart in durable equity investing success, but we have to be unrelentingly disciplined. The rush for faster riches has undermined many a portfolio and money management career.
Investors who reap multifold returns from a stock were invested in it long enough to enjoy the spectacular returns.
Their whopping harvest can astound even them, as they never expected such outsized gains during purchase. But they had to resist the urge to take money off the table when many other shareholders did as the stock kept chalking up gains.
They may also have sat through bad quarters or underwhelming years before the company did something right or hit a powerful business upcycle.
The firm could also have evolved markedly since they acquired the stock many years ago, when the organisation structure, financial profile, and commercial landscape were strikingly different (old annual, analyst, or news reports, from which they appraised the company, could show a fairly different company then).
Nonetheless, their persistence with the stock that they deemed worth holding eventually pays off even more than thought. Someone else could have bought the same stock cheaper, but sold it much earlier for a fraction of the gains.
Sudhan: That was an extremely comprehensive take. How long have you been a full-time investor?
HH: I’ve been an equity-only full-time retail investor for nearly 12 years.
That excludes another two active years in the market while I held an outside job and another four earlier years when I wasn’t active in the market, but avidly learning and watching a wide range of businesses and markets while also in the workforce.
Sudhan: What made you transition to being a full-time investor?
HH: Control over my time comes foremost. I prefer not exchanging my time for a salary and being subject to workforce life, if I can.
While investment work can be time-consuming, I can structure and schedule my days to my preference. I can also decide how far to take my work. It’s the freedom of self-employment.
It’s often that people either lack money or time. So having both is a true luxury. Passive income can free one from having to strictly trade time for remuneration. It leaves one with much more time and therefore life choices.
I can also better devote time to other things that matter such as family, health, non-work-related projects, and even go places or get tasks done during off-peak hours to avoid crowds.
Nevertheless, such a work arrangement is only possible in this era and place, when and where the market infrastructure, financial products, legal framework, communications technology, information access, trading fee structure, and cultural and societal attitudes, are supportive.
There’s also relative political and economic stability in Singapore and we live in an age when capitalism is dominant and respected. The country is business- and investment-friendly to boot.
To add, the absence of estate duty, and tax exemption for capital gains and dividends for personal equity investments, further facilitate wealth building. So it’s a fortuitous confluence of developments and events, here and now, that makes conditions favourable for a retail investor, full-time or not.
Sudhan: Was there a specific moment that made you realise you can be a full-time investor? In other words, how did you know, “Yes, now I’m ready to be a full-time investor”?
HH: This was when I was assured that my investment income could sustainably cover my expenditure.
I was also confident that the income would rise as the portfolio companies grew, paid out more over time, and as payouts redeployed into the portfolio further grew it along with the income, setting in motion a virtuous cycle.
(Editor’s note: The second part of the interview has been published and it can be found here!)
Have Burning Questions Surrounding The Stock Market?
You can participate in the lively discussion regarding stocks here at Seedly and get your questions answered right away!
Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. Readers should always do their own due diligence and consider their financial goals before investing in any stock.