The Art of Growth Investing

growth investing

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The Bf Gf Portfolio is broken into 2 parts:

– One part for dividends (Sgx stocks that pay dividends consistently)

– One part for growth ( Currently US stocks that can scale and grow… if I ever find a SGX stock that can do that, I will add it in.)

 

For the past few years, I have tried everything from trading to technical to fundamental, from undervalued to growth….  I have finally settled down on a strategy and style which will form the basis of the Bf Gf Portfolio.  Currently, the dividend portion is put on hold, until I have time to improve my dividend game.  For now, I am interested in filling up the growth portion so that it forms a bigger part of the portfolio.

 

 

The Philosophy

I look at buying stocks of a company as buying a portion of the company and owning it.  I try to think of myself as a businessman who owns many businesses.  Thankfully, the stock market allows me to do so.  A simple guy like me is able to be a shareholder of an innovative young company like GoPro or a massive plodding giant like MasterCard.  I can’t build companies like these but thanks to capitalism, I still have a chance to own them.

 

I will be rewarded when these companies grow in revenue, earnings, cashflow, as the value of my shares will increase.  The company will now be worth more.  Although the stock market offers opportunities, the prices shown often times do not reflect the true value of the company; and in some cases like 2007-2009, the companies can be grossly mis-priced.  I do not want to engage in the games that traders play, but choose to match the share price of the company to the fundamentals of the business, and see if it makes sense.  Sometimes it may be slightly over-valued, and I will still buy small portions.  Sometimes it may be undervalued, but I won’t whine about it, and may in fact load up on more stocks if my cashflow allows.  If I don’t worry about the price of my property going up or down, I will not worry about the flashing share prices that change every second as well.

 

I must not worry about corrections or trying to get out on high valuations.  Corrections will come, just like how when you ride the bicycle or skateboard, you will fall a few times in your life.  High valuations can remain there and if the company is good enough, some day it will match that valuation and even exceed it.  No point trying to get in and out.

 

 

Businesses need time to grow

Just as Rome wasn’t built in a day, businesses need time to grow.  Very seldom will one be able to find stellar performers that grow rapidly without any teething problems.  All businesses will experience troubles, problems and setbacks along their journey.  I must make sure I pick one with strong leadership and management to overcome any obstacles along the way.  That being said, businesses that can spring to life from start-up and become a blue-chip within a few years are hard to find.  Even, Apple, one of the most innovative companies of our time, faced a lot of uncertainties at the start before they established their moat many years later.

 

A long-term view for all businesses is mandatory.  And when I say long-term, it doesn’t mean 1-3 years.  I mean 10 -20 years.  That’s right, until I am almost close to retirement.

 

Some people might not get it, like – why earn so much money just to keep it locked up in your stocks?  But my brain works in a strange way, I just love owning companies.  I love doing business.  I love being part of businesses.  It gives me a kick.  As for the cashflow… well looks like I gotta find more ways to hustle out some cash.  Luckily, I love the challenge of that as well.  Thank you, brain.

 

 

The Math

For growth investing to work, I must HOLD ON TO MY WINNERS AND LET THEM RUN.  This is the essence of growth investing.  No such thing as selling shares once it is over-valued or fairly-valued.  No selling at 50%, 70% or 100% gains.  I am looking for blue-sky growth and when it hits the limit, I am looking for it to become a dividend-paying large cap.  The discipline to hold on to winners is extremely important because there will be losers.

 

If I hold 10 stocks, with 2k invested in each stock, and 4 of them go bankrupt and I lose 8k,  I am counting on the others 6 to gain, with 1 or 2 going way beyond 100% gains and more.  That way, I won’t lose, unless of course, I pick 10 stocks and maybe 8 companies go bankrupt.  If that’s the case, I should just dump my money in an index fund or ETF.  But I am an optimistic guy, I think in the long run I won’t lose unless I panic and sell on recessions. If that happens, I can really go eat shit and die.  Yes I am leaving that sentence there so I can come back and read it during a recession… which again, will definitely come some day.

 

I aim to beat the market.  Target 17% annualised, currently it’s 10.88% annualised.  I hope I don’t come across as arrogant but if I don’t aim to outperform the market, I should just dump everything into an index fund.  We all must have goals and challenges to strive for no matter how lofty they may seem!  Since that’s the case, even though I will diversify amongst many companies, every company I pick must have a high chance of becoming a star performer.

 

 

Is growth investing for me too?

Sadly, I can’t answer for you.  A friend once commented that he feels uncomfortable buying companies on growth thesis because he does not know when the growth might stop.  I, on the other hand, am perfectly comfortable in diversifying my allocation in such companies, (refer to the Math section again.)  I can only advice that you be honest with yourself and match your personality, temperament, habits, strengths and weaknesses to an investing strategy that suits your character or thought processes.

For me, growth-investing works because of the somewhat simplistic way I view businesses: Business grow = value of shares grow.  A super long term view, stringent guidelines for buying strong companies, and prudent allocation of capital, should set the Bf Gf Portfolio up for further success.

 

 

What about you?  What’s your style?  Dividend-growth /  value / turnaround / asset-plays?  Leave your thoughts in the comments below as I would love to hear more about the pros and cons of your investing style 🙂

 

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4 Comments

  1. Rolf Suey

    Hi BfGf,

    Good article. I think u noe wat u r doing and definitely not arrogant, but just confident. This is important in life.

    One thing I learn about stock investing or broadly also apply to life.
    Always tell yourself “Never be too Happy and Arrogant when stock prices are up, and Never be too Sad when prices are down!” The same applies to life. Sometimes, it is more important to admit mistakes and learn from it. Nevetheless, continue to be positive, learning and feeling confident is important.

    Read http://www.rolfsuey.com/2014/12/oil-price-slump-my-portfolio-what.html for a brief approach for my portfolio for now. Over time, it may change ☺

    Reply
    1. The Bf (Post author)

      Hi Rolf,

      Damn zen la your style, I like!

      Ai seh, oil and gas industry insider. That’s a very informative article that’s linked to even more informative articles. Thanks Rolf!

      Reply
  2. Kel

    Growth investing is long term. You invest in a good company with great management team and forget about it. Those that want short term winnings should try their luck with penny stocks, but that is a totally different style of investment. I put it as my retirement investment. If I can’t get bitches, at least I got my beach bar and that is something.

    Reply
    1. The Bf (Post author)

      I will buy shares in your beach bar 🙂

      Reply

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