Over the past few days, I dropped Kyith from Investment Moats an email, asking him his views on portfolio allocation in an impending stock market fall.
After a few email exchanges, he texted me (woah!) since its easier to text. We spoke a fair bit about market entry and exit price since that’s probably one of my weakest point.
We then spoke about portfolio allocation, something which was very useful to me.
I started investing in August 2017 into the US stock market, and it was still a bull market, and I was lucky enough to pick up some high growth tech stocks: NVIDIA, Amazon, Facebook, Micron, Alibaba and the rest.
Of course, while the growth in share price are backed by growth in earnings, PE is still off the chart and it felt like anytime the market can face a price correction.
To balance my risk, I started to put in some money into the SG REIT market, which is perceived as more stable and has predictable dividend payout. In the long run, hopefully I can build up a decent dividend portfolio so that I can earn a passive income, similar to what most financial bloggers in Singapore are enjoying now. I wrote about this investment thesis previously too – focusing on high growth US stocks to build capital now, and then use the capital to put into high yielding stocks / REITS later.
So I shared with Kyith that I started investing in US Stock market at Aug 2017, and SG REITS in Jan 2018, with the following allocation so far:
- US Stocks – 60% of portfolio, +40% gain so far
- SG Stocks – 30% of portfolio, -12% loss so far
And he told me that it seems like a wrong move.
“I think what u need to focus on… Is to draw good conclusion from your results, and observations. Have good discussion with people you think have a sound idea how they do things, When you do that it refines your way of investing, your allocation.”
This was the one that inspired another investment theses:
“U might reflect and conclude that u should focus on high growth companies. U might reach a conclusion that, building a dividend portfolio competency don’t happen just suddenly so u have a satellite portfolio to learn how to do that.”
He also added that he realized that everyone in the investment space do things differently, but the similar things are, we have a good idea on what everyone is doing because we can speak coherently about our strategy.
So I then told him that I want to shift towards a dividend portfolio because of its lower relative volatility as well as consistent predictable dividend payout. And he told me that, a dividend stock is similar to a growth stock – something that would possibly change my investment theses in the coming months (since Im looking at allocating more capital into dividend stocks).
“Firstly dividend is paid out of cash flow or earnings. So a high growth company means greater earnings. In theory if they stop growing their dividends can be higher. Overall dividend stocks are like growth stocks. There is no difference. It’s whether you choose to pay out dividend”
“Secondly if you view your high growth portfolio as a fund. You can pay your own dividend. Say your portfolio of 20,000 is made up of Netflix, Microsoft and Amazon. They grow. At the end of the year their earnings yield is 9%. U can sell equivalent units worth 4%. And that is your dividends. No difference there, whether the company payout or Jacky’s USA portfolio pays out.”
“The difference between companies leaning towards growth is that their earnings and cash flow these managers in Netflix help you deploy. In the case of dividend leaning stocks. They give you the cash flow.”
Super thankful that folks like Kyith will just text me, bringing the conversation to whatsapp instead of email, not asking for anything in return.
Note to self: Gotta pay it forward.