Wednesday, September 21, 2022

Picking Growth Stocks With Investor-One Portfolio

Growth stocks are good additions to our portfolio to boost our investment returns over the long term. Most of the stocks in our portfolio will be average or even loss making but there may be 1 or 2 super growth stocks in our portfolio which boost our returns significantly. 

An example of a growth stock is Netflix which grew by 145x if you invested in 2003. $10,000 invested in 2003 would be worth $1.45 Million now. Its a long 19 years but still the returns are exceptional at average of 763% annually. Another growth stock, Tesla grew by 146x in 10 years from 2012 to 2022. $10,000 invested in 2012 would be worth $1.46 Million now. While these growth stocks would have given our wealth a significant boost, the issue is always how do we pick winning growth stocks?

For Singapore market, there are also growth stocks. An example is iFast which grew 8x in just 2 years from 2020 to 2022. $10,000 invested in 2020 would have grown to $80,000 in just 2 years. The price of iFast have since retreated down but the returns are still about 4x-5x. 

Investor-One, a website by ShareInvestor, has a portfolio feature where their research team manage a portfolio of stocks which are focused on growth. They select stocks based on a a set of fixed financial parameters as seen below:

These financial metrics seems reasonable to find undervalued companies which are not big market cap and with strong financial standings. Most of the companies which grew tremendously over the years had small market cap back then and they slowly grew to become big market cap companies such as Netflix. 

On the Investor-One portfolio page, you will be able to find stocks which are in their portfolio and their recent buys for this portfolio. This portfolio is managed by ShareInvestor's Investor-One team. You will be able to see their portfolio returns too. For each stock buy, the team has also put up notes to explain the rationale of buying the stock. One example of a buy for HRnetGroup is seen below:

In the Investor-One portfolio, there are 7 stocks now. Some of the stocks are making money while some are in the red. This is part and parcel of investment and our view should always be for the long term and hope that the winners are more than the losers in the long run. I've learnt over the years that we can never be 100% correct for investments but some financial metrics will guide us to choose the right stocks. Buying companies which are overvalued is a sure way to lose money so its important to refer to some financial ratios such as Price to Earnings (PE) and Price to Book (PB) when choosing stocks to buy. While financial ratios may not be a full-proof way to make money, it does provide some guidance for us not to buy overvalued companies. 

When the market is red hot, it is best to stay out of it so knowing how to use financial ratios to evaluate our investments will stop us from being too greedy. While the stock market is not red hot now, the Singapore property market seems to be with many buyers rushing to buy private properties as new launches for condos get sold out in a matter of days. Even HDB prices are skyrocketing with more and more above 
S$1 Million HDB being sold and buyers willing to fork out cash over valuation of $200K for a HDB which was sold for S$1.2 Million dollars just recently. Paying cash over valuation of 20% is like buying a stock 20% higher than it's PB. 

You can check out Investor-One portfolio page which will be updated when there are new purchases and you'll be able to see how the portfolio performs over the years based on the above financial parameters. 

This post is sponsored by ShareInvestor but all views are of my own

Sunday, August 28, 2022

The Ultimate Financial Independence Visualisation Tool

There's a saying that goes like this "If you fail to plan, you plan to fail". However, most of the time, you may be lost as to how to start your own financial planning to achieve financial independence (FI)? How do I even know how much income, expenses or investment return I must have in order to achieve FI? When is the age where I can finally say to my boss "I Quit"? 

These are all relevant concerns which is why I created a financial independence visualisation tool which I use for my own financial planning also. I've made it easy to use so you can just input your age, income, current savings, expenses, target dividend yield, bonus, salary increment and emergency fund and the tool will calculate it all out for you. 

Here's a screenshot of how the tool looks like in excel:

I'm giving this tool for free for download so do read all the way to the end for the link to download the tool. 

Visualisation is powerful where it can let us see where we are currently and where we will be in the future. With visualisation, we can adjust our parameters and achieve what we want for FI. This is like seeing light at the end of the tunnel instead of being blinded by darkness if we cannot visualise where we are going.

For example, if you're thinking of achieving FI when you are in your 40s, how do you do it and does your current financial situation allows you to do it? By putting in your details in the spreadsheet, you will be able to see if the dividends you receive will exceed expenses by what age? 

Using the visualisation tool, a person at current age 30 with the below details will have his dividends exceed expenses at age 62 only:

For networth, this is how it will grow for the same person:

To recap, for this person, his dividends received will exceed his expenses only at the age of 62 with a networth of almost $2.2 million. This is considering he only had a $2500 monthly expenses in his 30s. Dividends he will receive annually is $91,627 while his expenses will be $90,128. That's an expenses of average $7500 per month which has increased about 2.6x in 32 years just based on an inflation rate of 3%. That's the impact of inflation it has on our lives so we must factor this in our financial planning. We will definitely need more money in the future as cost of living continues to go up.

We assume the person above consistently invests 85% of his networth at 5% investment return and he will have $2.2 million at age 62. What if this same person does not invest at all? How much will he have when he's 62? The answer is $1.1 million, half of what he would have. This is the power of compound interest through investing. In the visualisation tool, it assumes that dividends received are reinvested back so it still acts like compound interest overtime. 

The tool may not be perfect but it would be the closest to what we can have to visualise our financial future. Feel free to try it and adjust the parameters and formulas to suit your needs if you feel its not too accurate for you. 

You can download the tool here and try it for free now. 

Hope this helps in your financial planning!

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Friday, August 26, 2022

Work can be frustrating and that's why the need for financial independence

Recently, I've been feeling frustrated with work and it's really bad for health. Getting blamed for mistakes, getting scolded and being thrown lots of workload are part and parcel of the working life. Sometimes, missing deadlines is not entirely controllable as there are many factors which can happen and having to go through multiple approvals and stakeholders can delay the whole process. Not everyone is cooperative and in the end most people will protect themselves first. I've worked in 3 companies now and all have its good and bad points. The verdict is whichever company you join, there are bound to be unhappy times and times of frustration and stress. At the end of the day, most people are just working for money to put food on the table and pay the bills. 

Sometimes I wonder is it because I take work too seriously and get affected when I make mistakes. I blame myself a lot and keep repeating in my mind why did I even allow it to happen. While on the other hand I also see people who are nonchalant about their work attitude and can get away doing little work by acting blur. These people survive the longest in the company. 

Nevertheless, this is why it's important to achieve financial independence because you are able to be in control of your happiness and health by calling it quits when it becomes unbearable. There are more young people who are in fact doing this now where there's a term called the great resignation where many resign without a job. Many people are also suffering health problems and burn out as we progress as a nation. Unfortunately, the push for productivity may end up causing many to suffer considerable side effects on their health. 

Will we end up like Japan where their citizens can work non stop and even to the extend of death by working? I think as society progresses, it gets increasingly difficult especially for Singapore where we have no natural resources. We can only depend on ourselves in order not to work to our deaths. I've already seen some colleagues who passed away while they were still employed by the company due to certain illness. They didn't get to retire at all. 

While I still cannot call it quits when work gets frustrating, I hope one day I can finally say I do not have to work for money and really do the work which I enjoy and not having to be frustrated and still suck it up.