Wednesday, January 6, 2010

Lessons learned from the the big correction in 2007/08/09

When market crashed in October 2007, my share portfolio took a very hard hit and when from profit to lost. From a +25% profit, it went all the way down to -60% lost in February 2009. In fact, if I had not continued to buy shares in that period, the lost (from the original portfolio in 2007) would have been even more.

Thank God, as dramatic the fall was, so was the recovery since March 2009. As at 31 December, the portfolio recouped much of the losses and is currently at -6%. If I take into consideration of the dividends collected and others, it would be a +3~5%.

Its bout time to take stock and pen down lessons learned:

1. Cosco. It was my star performer before crisis. I bought the shares at 1.16 and it went all the way up to 8. Believe it or not, I did not take any profit. ON the hindsight, I should have taken some profit at it clearly exceeded 7% of my portfolio. (7% was my set max. of a single stock in my portfolio).

2. Chasing stocks on high price before the crash. That was my mistake. when STI was above 3,500, and warnings have been sounded for a correction, I ignored them and continue to chase stocks which have run up a lot.

3. Looking at my portfolio now, I can see that blue chips recovered very well from the correction. Whereas small and mid cap don't. This shows that small and mid cap are too over-value in the bull market prior to 2007. I have bought them without considering the intrinsic value, and therefore suffer big lost. This is an important lesson. Chasing "market darlings" that has run up substantially is definitely out for me in the future.

4. Importance of dividend payout. The cash dividend I received in the last two year did not reduce very much. It helped me to re-invest and boost the portfolio dring recovery.

5. Continue to stay invested. This is the reason for my portfolio to recover. As market crashed, I had a chance to buy into stocks that were expensive before. And when market recovered, this help to boost my portfolio value.

Going forwards, I shall:

1. Continue to be invested in the market.

2. Go for more defensive counters, since I have passed 50 mark. Go for dividend play to build up my alternative source of income.

3. Continue to diversify the portfolio.

4. Strictly limit the percentage of any single counter vs the total portfolio. No buying in of counter which exceed 7%. If any counter exceeds10%, bring it down to 7%.

5. Only add new counters with good intrinsic value.

** The above are reflection as at Today. They may change in time. Use them at your own risk.

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