Here's How a Full-Time Singaporean Investor Manages His Stock Portfolio and Finances (Part 2)
The first part of the interview with full-time investor, Wan Hsin Hun, was well-received by our Seedly community.
We are happy to bring you the second and final part of the two-part interview.
In this instalment, we dive into topics such as what makes an investor successful, managing one’s personal finance, and the downsides of being a full-time investor.
Just like the first part, there are lots to soak in. Be sure to bookmark this article if you would like to re-visit it later.
TL;DR: Conversation With a Local Full-Time Stock Investor (Part 2)
Here are some highlights from the second part of the interview I had with Wan Hsin Hun:
- “Many people may think that having enough seed capital is the top requirement for full-time investing. It’s not.”
- “Mega-riches in a relatively short number of years may be better attained through starting a successful company and growing it rather than trying to produce outlandish returns on a sum in the stock market every quarter or year.”
- “Career longevity [in the stock market] comes with knowing how to defend and build on our gains, staying enthused, and not burning out.”
- “Keeping records of our investment thoughts, trades, and portfolio enables us to better see the long-term, be reminded of forgotten ideas and lessons, and see how we have matured and progressed as investors.”
- “[W]e should bear in mind that remarkable patience, unwavering emotional discipline, independent-mindedness, and being comfortably contrarian, are defining traits of successful investors.”
- “Successful stock investors are largely market optimists who believe in the market’s ability to recover from any setback. There never was a year when the world was problem-free.”
- “[S]tocks, as a whole, have risen since the beginning of the modern stock market, with dips, corrections, and crashes at intervals.”
- “Be diversified; for lack of a better phrase, stuff happens.”
- “The long-lasting companies are those that can keep capturing cash flow, accrete value, and see off rivals even as the world keeps moving; it’s no mean feat just to stay relevant.”
- “The workings of compound interest, power of positive cash flow, time value of money, rule of 72, and impact of a low base effect, should be incorporated into our personal finance and investing strategy.”
- “We aim to stack the odds profoundly in our favour by wagering on long positions in counters that are as strong as possible, as cheaply as possible, and holding them for as long as possible – without using margin.”
- “A wonderful equity investing edge is that we can always start small; we can commit in larger ways later, including quitting the workforce, when our investment results are consistently favourable.”
- “In building individual wealth, personal finance comes before investing.”
- “Monitoring income and expenditure, budgeting, separating needs and wants, and delayed gratification, are known [personal finance] tips that are necessary.”
- “We invest in good assets to gain time freedom; there’s irony in overinvesting time in counters we’ve owned for years and have understood well, particularly if there aren’t significant developments that need dissecting.”
- “[G]ratitude and contributing back to society are important, as there are many in the ecosystem who helped us reach where we are”
- “A complete investor invests in health, relationships, knowledge, nature, and the gains of future generations other than for money.”
Sudhan: Are you more of a growth investor or dividend investor? Which markets/geographies do you invest in?
Hsin Hun (HH): It isn’t too much to ask for both growth and yield in a stock or in a portfolio. I look at total returns comprising price appreciation and dividend yield.
A slower grower is likely to pay more dividends and a faster grower can pay out comparatively less.
Nonetheless, the counters that I own have to pay out, barring exceptionally trying times. As elaborated earlier, yield is crucial for many reasons, so I insist on owning counters that pay a dividend.
Between growth and dividend, my portfolio is tilted toward those counters that pay a reasonable yield on my buy-in cost.
In Singapore’s context, I’d rather invest in a company with a decent yield and a moderate growth rate than another with a fast, volatile growth rate but no payout or a yield on cost that’s little.
Compared with other major stock markets, Singapore is a market generally better for yield than constant price performance. And the earlier mentioned (in part 1) tax exemption on dividends for personal equity investments adds to the yield allure and edge.
I look at stocks from the major markets but with a focus on Singapore.
Sudhan: What advice would you give those who wish to be a full-time investor?
HH: I can only speak as an individual equity investor.
Many people may think that having enough seed capital is the top requirement for full-time investing. It’s not.
Rather, it’s having the abiding confidence, as well as ardent interest, in carving out a viable, enduring career centred on building one’s investment portfolio and doing its related work.
As with all happy, lasting careers, a good job fit is necessary.
While the experience, knowledge, and skills are obvious needs, one may not want full-time work that revolves around desktop and field research, analysis, calculations, abstract thinking, and voluminous reading.
A steady, unfailing resolve to stay the course, to forge one’s own path in the face of innumerable distractions in a multi-year journey, is necessary.
Media and social circle stories of overnight success, quick riches, and people enjoying astronomical success in another career or through investing in another asset class, can be distractions to one’s long-term stock investing goals.
The stock market has its own rhythm and its underlying counters follow their own business trends and management responses; they move at their own pace.
Mega-riches in a relatively short number of years may be better attained through starting a successful company and growing it rather than trying to produce outlandish returns on a sum in the stock market every quarter or year.
As a career, we’re not looking to outperform everyone in any given year, but we’re seeking the longest career success and growth. Career longevity comes with knowing how to defend and build on our gains, staying enthused, and not burning out.
Lots of time is needed for undisturbed cogitation, away from the flashing prices of a live stock market. We don’t have to react to every news article or pundit on air. Filtering out the noise is needed.
In addition, mingle with accomplished investors, full-time or not, who have been in the market for many years and gone through different market cycles and trends, and/or read or listen to their investment thoughts culled and refined over a long-lasting market career.
Also, to better learn about an unfamiliar counter, consult those who have owned it for some time.
Keeping records of our investment thoughts, trades, and portfolio enables us to better see the long-term, be reminded of forgotten ideas and lessons, and see how we have matured and progressed as investors.
We should be able to review our past investment convictions and accompanying rationale, along with the resulting triumphs and mistakes. We strive to amass investment wisdom with time, from our experience and that of others.
Everyone who’s been in an industry for some time will develop his or her work philosophy and style; it’s no different for seasoned investors.
We’ll find our own investment philosophy and style with time, as well as the right risk-reward balance and an optimal number of counters to own – that best suit our circumstances and preferences.
Nonetheless, we should bear in mind that remarkable patience, unwavering emotional discipline, independent-mindedness, and being comfortably contrarian, are defining traits of successful investors.
Successful stock investors are largely market optimists who believe in the market’s ability to recover from any setback. There never was a year when the world was problem-free.
But stocks, as a whole, have risen since the beginning of the modern stock market, with dips, corrections, and crashes at intervals. Each pullback only primed the market for its next ascent to yet another historic high; the market will as surely resume its climb as it will retreat and rest. Never underestimate humanity’s ability to overcome problems and the market’s ability to find its way up.
Investing gets more attention than reinvesting. But good reinvesting to build on previous gains – sale proceeds or payouts received – is central to portfolio expansion. A reinvestment loss eats into previous gains, whereas a reinvestment gain becomes an extension of previous gains. Seeing reinvesting as a continuation of past trades, rather than unlinked, fresh ventures helps adjust our risk appetite to better conserve gains secured.
Be diversified; for lack of a better phrase, stuff happens.
We’re investing in businesses and the business world is exceedingly dynamic. Companies come and go. From an asset standpoint, it’s easier to find a very old building than a very old company.
The long-lasting companies are those that can keep capturing cash flow, accrete value, and see off rivals even as the world keeps moving; it’s no mean feat just to stay relevant. Nonetheless, the richest business owners in the world made the bulk of their wealth in very few companies, private or public. So be diversified, but not excessively so.
The workings of compound interest, power of positive cash flow, time value of money, rule of 72, and impact of a low base effect, should be incorporated into our personal finance and investing strategy.
Also, know about good debt as well as behavioural finance.
The market is the ultimate arbiter. We can act on a stock after splitting hairs over its financial intricacies and every piece of its news for years. But the market may disagree with our bet and not reward us at all or as much as thought. After all, stock investors profit in only two ways: price differential and cumulative payout. So refrain from overanalysing and keep things in perspective.
While equity investment outcomes depend highly on both counter and market performance, successful equity investing is no aleatory pursuit. We aim to stack the odds profoundly in our favour by wagering on long positions in counters that are as strong as possible, as cheaply as possible, and holding them for as long as possible – without using margin.
A wonderful equity investing edge is that we can always start small; we can commit in larger ways later, including quitting the workforce, when our investment results are consistently favourable. This is unlike the heavier upfront expenditure and time commitment needed for setting up a business and solving its teething problems from the outset.
Sudhan: How do you manage your cash flow without a constant inflow of cash (unlike a salaried employee)? Do you have an alternative source of income?
HH: Stock payouts aren’t that unpredictable. We can anticipate the month that a counter is due to pay and the likely quantum based on its past payouts and recent business performance. It’s also unimaginable that all counters in a diversified portfolio will cease paying in any year, even during a massive crisis.
At any rate, we can always reserve cash for routine needs while awaiting the next payout or even divest something if and when a big sum is needed urgently.
At the same time, personal and household expenses are typically routine and foreseeable. Payments for any housing mortgage, vehicle loan and maintenance, parking space, school tuition, utility charges, conservancy fees, monthly food and transportation expenditure, follow-up medical bills, property and road taxes, and insurance premiums, are nothing out of the blue.
It’s the discretionary expenses, instead, that are usually the larger spending variables and they hinge on personal thrift.
Other than that, it’s the sudden repair or replacement of a big-ticket item that could be a meaningful variable. Nonetheless, the potentially truly sizeable, yet unpredictable expenditure may be unplanned medical and legal expenses.
Not everyone in the workforce has a fixed salary; some depend highly on commissions and bonuses, or have seasonally-subjected takings. There are also cash-rich retirees who lack investment know-how. In the absence of fixed income, they plan their spending accordingly.
Equities are my only income source.
Sudhan: How do you balance dividends with capital gains?
HH: I own stocks that keep a good payout ratio unless their rapid growth rate and likely swift capital appreciation warrant a relatively low ratio.
In any case, a reasonable yield on cost secured on purchase helps ensure cash flow adequacy for the amount invested, unless the payout is reduced.
Sudhan: Would you mind sharing your overall personal finance management?
HH: I derive my income from equities and look ahead to allocate funds for my spending needs. As shown above, routine expenditure can be quite predictable. So cash that exceeds my estimated near-future needs are reinvested.
My CPF funds earned many years ago continue to compound while the CPFIS portion is parked in dividend-paying equities that are less likely to do cash calls. I have life and health insurance policies.
In building individual wealth, personal finance comes before investing. Successful investors or high earners of any field with poor money habits tend not to go far in guarding and growing their wealth over time. Financial prudence and sensible investing are inseparable in protecting and building wealth.
Financial literacy is basic to anyone’s wealth preservation endeavour. Although we can outsource financial management and investing, the definitive decision to execute any key transaction or pick an apt money manager remains with us as owners. To acquaint ourselves with the rudiments of personal finance and investing is the least we should do in looking after our money well.
Sudhan: Do you have any personal finance tips on how you keep your expenses low?
HH: Monitoring income and expenditure, budgeting, separating needs and wants, and delayed gratification, are known tips that are necessary.
Several other tips:
- Be conscious of interest cost incurred on any loan or penalties imposed for any outstanding payment.
- Don’t fall for sales or discounts of products and services that aren’t needed.
- To help rein in impulsive purchases, take time to research and contemplate while being away from the point of sale before committing.
- As noted above, know that it’s discretionary spending, not routine expenses, that’s the bigger cash outflow variable.
- Know that people have a propensity to start a related collection after buying something that they like and this could turn out to be a dear hobby. That said, it’s somewhat different if the items are value-appreciative and/or cash-generative assets.
- Stay healthy; bad health is costly, not just on the wallet.
Don’t go out of the way just to save a few cents, especially if it’s a one-off expense; it’s not worth the time and effort, which could be used to make more than that amount or other productive gains.
Sudhan: How has the investor in you evolved over the years?
HH: The basic principles and mindset of collecting and compounding a portfolio of good assets over the long run are predominantly unchanged.
Nevertheless, there are three areas I’ve further sharpened.
First, avoiding value traps, aggressively expanding companies without consistent cash flow, and unsustainably high yield counters.
Second, concentrating more on consistently high cash flow operating companies with low debt.
Third, seeing the vital distinction between a recovering stock and a growing one.
I’ve also dedicated more time and attention to things outside of equity investing and not fuss over every minor company or news update.
We invest in good assets to gain time freedom; there’s irony in overinvesting time in counters we’ve owned for years and have understood well, particularly if there aren’t significant developments that need dissecting.
I’ve also allocated more time and effort to giving back; gratitude and contributing back to society are important, as there are many in the ecosystem who helped us reach where we are. We’d be a rentier society if everyone just lives off asset income.
A complete investor invests in health, relationships, knowledge, nature, and the gains of future generations other than for money.
Sudhan: Thank you so much for what you have shared so far, Hsin Hun. There are so many nuggets of wisdom peppered here and there.
Are there any other things you want to share with our Seedly readers that will help them in their full-time investment business if they wish to go on that path too?
HH: Enjoying or being adept at an activity doesn’t mean we’re suited to do it for a living. Turning professional for any activity is a momentous career choice that entails risk-taking, family support, and lifestyle changes.
We have to mull the opportunity costs of leaving a potentially fulfilling, meaningful career elsewhere and missing any esprit de corps of an organisation or possibly forgoing any plum post in an admired company.
There’ll no longer be CPF deposits, performance bonuses, medical benefits, or paid leave from an employer as well.
Having no employment income also makes it tougher to apply for a bank loan or credit card.
Turning full-time is a form of entrepreneurship.
In the initial months and years, tremendous focus and time dedication is needed to hone our craft, sort out finances, and plan our schedule around work – which could also possibly be in a home environment. Family support is thus essential.
Also, a fun activity may not be so anymore when we do it full-time. For some, they may feel more performance pressure because it’s now a career; for others, more time spent on stocks could mean more speculative punts in the market that interfere with their main portfolio strategy.
Nevertheless, all employees eventually go through one of the three Rs: resignation, retrenchment, or retirement.
And all of them will, sooner or later, need to know what to do with their cash other than leaving it in the bank. The investor, full-time or not, is merely focusing more than non-investors on a life skill that’s part of personal finance.
Apart from the financial returns, equity investing has enriched my life immeasurably, in being a shared activity and topic with family, a way to make new friends, a priceless education on industries and markets, a way to participate in business history while watching it unfold, and a means to step away from the labour force. It may be just as life-changing for many others, bringing them untold gains.
Unlike most other ways to make money, equity investing has minimal physical demand and no age limit, so it’s something we can engage in for as long as we’re of sound mind. It can be a delightful, all-enriching game that lasts a lifetime.
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