You may not have noticed this news but …
… the number of COVID-19 cases in Singapore has dropped below 250 based on a 7-day moving average of local cases, as of 29 January 2023.
This is a far cry from the start of last year when the number of cases exceeded 26,000 in a single day.
What a difference a year makes.
Like many others, we hope that the worst of the pandemic is behind us.
After all, the past three years have been anything but ordinary. Over in the US, we have seen stocks rise aggressively in 2020 and 2021, only to give back a big chunk of their gains in 2022.
While the stock market has been volatile, our investment principles remain unchanged.
Smart Investing Principles for the Smart Investor
At the Smart Investor, we believe there is more than one way to invest.
My co-founder, David Kuo, is the best dividend investor that I know.
But it doesn’t mean that we agree on every single investment decision.
This contrast begs the question: what do we agree on?
Let me talk about three principles as a start.
1. A long-term mindset
Whether its dividends or growth, everyone in our team agrees that the best returns come from holding stocks for the long term.
This mindset is easy to say, but hard to do — the difference is, we walk the talk.
By the end of 2023, my portfolio will contain more than 25 shares that I have held for 10 years or more. The stocks in this cohort range from dividend-payers to growth stocks and everywhere in between.
For an example on dividends: ParkwayLife REIT (SGX: C2PU) has been in my family’s portfolio since early 2009 at a cost basis of S$0.73 per share.
As of the market close last Friday, the units have gained almost 450%.
That’s not all.
The distribution per unit (DPU) offered from 2009 to 2022, accumulated over a period of 14 years, amounts to another S$1.63 in gains or 224% the original cost basis.
A simple addition of the capital gains and dividends received, without considering reinvestment, would bring the REIT’s overall return to almost 675%, a satisfying return for this dependable dividend payer.
On the growth end of the scale, I have held shares of Chipotle Mexican Grill (NYSE: CMG) since February 2007; almost 15 years from the day the stock was purchased.
Compared to the buy price of US$57.38, Chipotle shares have gained by over 2,700% or 28 times more than what I paid, as of last Friday.
I offer these two contrasting examples to show you, dear reader, that extraordinary returns are possible if you have the tenacity to hold stocks for the long haul.
Whether its growth or dividends, we can agree that both styles deliver pleasing results over time.
2. Focus on the business behind the stock ticker
In a world rife with noise, our team has a singular focus: the business behind stock ticker.
Whether it is dividends or growth you seek, the right place you should start is to pop open the hood, and study everything you can learn about the underlying business.
Dividends, after all, do not appear out of thin air.
A company has to have cash to be able to afford these distributions to investors. Without cash, dividends will soon dry up because the business can no longer sustain the payouts.
Similarly, cash does not appear out of thin air.
The business’s ability to consistently generate cash is a key consideration. Hence, any worthwhile analysis, in our view, will need to consider the business as a key anchoring point.
The similar reasoning applies to stocks that exhibit growth.
Undisciplined growth is, no doubt, exciting but it may be short lived.
If a business does not generate positive free cash flow or build a moat around itself, its wheels will soon fall apart when tested under harsh economic conditions.
3. To invest smartly, think broadly
When it comes to investing, having disagreements is healthy.
After all, if everyone is thinking the same way, then no one is really thinking at all.
The unbridled optimism of a growth investor can always use a reality check from time to time.
Conversely, the natural pessimism of a value investor could be better balanced by looking at a glass as being half full, rather than half empty.
We may not agree on the details.
But we should agree that we will all be smart if you consider all the points on the table. By doing so, you are able to think more broadly compared to being on your own.
Get Smart: Different landscape, same principles
The above are just three principles on which we agree upon. We recognise that they are, by no means, unbreakable rules.
As we enter 2023, it is unlikely that the next three years will resemble anything like the last three.
Yet, even as conditions change, our investing principles remain the same.
That, to us, is Smart Investing.
In our latest Special FREE Report, we cover the best performing stocks and blue chips in the Singapore market in 2022. Look forward to 2023 as we cover the industries and sectors that are poised to do well in the year ahead. Click HERE to download for free now.
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Disclaimer: Chin Hui Leong owns shares of Chipotle Mexican Grill and ParkwayLife REIT.