Saturday, February 05, 2011

Volume 3 Issue 5: Intelligent Investing

The Main Streeter Portfolio

From next week onwards, I will start a paper portfolio with a starting cash of RM100,000. The Main Streeter portfolio will be updated weekly based on its net asset value.

The base investment philosophy used for this portfolio is value investing. I would not go too much into what value investing is because there is abundant literature out there on what value investing is along with some form of its methodology.

It would be sufficient to say that value investing is like shopping for a stock that is WORTH RM10, but paying RM5 for it. The key is in knowing how to find such stocks. I will not hide the fact that it will be a challenging ordeal. In fact, publishing the portfolio is actually a bold move on our part because of two reasons.

First, I would be in many ways staking my reputation on the stocks that are chosen here. The reputation of this newsletter will sink and swim with the stocks that the portfolio purchases. Second, the kind of research involved in order to find these value stocks are actually worth a lot of money. I will be publishing this for free for the time being to put our reputation of the Main Streeter to the test.

Nonetheless, it should be noted that the philosophy used will not be the value investing in the strictest sense as introduced by Benjamin Graham. In fact, it would not even be the same kind of value investing that Warren Buffett uses. It is a combination of many other techniques and methods that we deem useful with value investing at its core.

The investment objective for this portfolio would be similar to any portfolio that is based on value investing, that is, to achieve long term capital appreciation. This means that the price of the stocks may drop or may shoot up in the immediate term, but we may not sell the stocks to cut losses or take profit. The goal for the performance of our portfolio would be to double the value every five years.

Nonetheless, our benchmark used will be the FBM KLCI. At the least, we hope that the Main Streeter Portfolio will outperform the KLCI over the long run. Otherwise, there is absolutely no use in having this portfolio at all.

Finally, to explain the details of transactions. Purchases will be announced at 8.00 a.m. on the day of the purchase based on the latest closing price of the stocks. We will assume that the transaction cost 0.6% of the value of purchase. Apart from the purchases, we willl publish the portfolio every quarter ending 31 March, 30 June, 31 September and 31 December.

The cash in the portfolio will be assumed to earn an interest of the 1-month prevailing fixed deposit rate and adjusted for any purchase during the month.

Disclaimer: All company analyses, including the paper portfolio that appear in this newsletter are derived from facts gathered from various sources and the contributors' personal opinions and for education purposes. It is NOT an invitation to deal in securities, and especially not a recommendation for buying or selling any stock. The contributor(s) do not guarantee the accuracy of the facts being presented. The accuracy of such facts are only as reliable as the sources that they are obtained from. Please consult your investment advisers before acting on any information provided by the analyses here.

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