Saturday, October 18, 2008

Strategy and allocation: Oct 2008

Where I am now:
I have $67K cash. The only share I own is 11 lots of Pfood (spent 9K, currently worth about 4.4K @40c, ouch).

Where the world is:
  • Banking crisis: This is where where banks can't or won't lend money. Governments are doing everything possible to stop get banks to start lending. There have been many banking crises before - it is not the end of the world. For companies that need capital, monitor the TED spread (here), and the SOR and SIBOR rates.
  • Recession: I expect a recession. It is normal to have recessions after booms, and especially after credit crisises. Dont know how long it will last. Worst case, several years.
  • Bear market: We are probably still in a bear market - too volatile to call any direction. From IBD: All the single largest day gains have previously occured in bear markets. dont know if there will be a quick recovery, like after the Asian crisis, or a multi year bear market like in US the 70s.
My Plan:
Use 32K of my portfolio for value investing. This is 'buying on the way down':
  • Buy good companies when they become so cheap they are irresistible.
  • No need to rush, can buy slowly over the next year, as I find them.
  • Probably allocate small amounts to these companies (especially the second liners - around 5% each) as this style of investment has some risks - you lose everything if you get it wrong.
Use the other 35K (plus any extra if I did not find good companies to buy) for growth investment, speculation. This is 'buying on the way up':
  • Wait for IBD to signal a follow through day, and identify leading stocks which have either: broken out (or at least held their ground), or made bottoming patterns on the SGX.
  • Buy slowly and with cut-loss, as it may be just a tradeable rally, or a false signal.

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