Friday, March 24, 2017

Equity Management #6 : A unified approach to engineering portfolios.

Ok, we're moving into a new section of the book which talks about portfolio management. The basic summary is quite simple - a unified approach towards portfolio management trumps the approach where the markets get segmented.

What this means to me is quite simple, wherever possible, try to start with the entire universe of stocks. In my case, I review the 700+ counters available on SGX through my broker when looking for counters with the highest yields.

Stick to table of stocks which typically gives higher yields is self defeating because even Venture does not give 6% yields anymore at its current price. Instead, the table of yield stocks should be updated from the entire universe before I target a set of stocks for analysis.

The chapter also hints that some forms of analysis might be superior depending on the sector you are analysing :

Dividend discount models work better for utilities. ( Which begs the question of whether it would similarly be good enough for REITS. )

For growth industries like  the Tech industry, momentum measures might be a better bet.

The chapter also considers the power of long-short portfolios, something which I was tempted many times to try but have no guts to do so. Basically, you you go long on a set of low P/E stocks and you go short on a set of high P/E stocks. As you may have no market risk, any profits you make is portable and above and beyond index returns and you can then supplement the returns with a position on the STI ETF.

These are all great ideas, but my finance portfolio is not merely a financial strategy, it is also a lifestyle strategy which lets me focus on my legal studies with minimal trades.

So I'll stick to my dividend income portfolio, thank you...

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