Over the years I have been evaluating and evolving my approach to equity investment.
I started off by investing in mutual fund but closed out all my funds after following articles in www.fool.com. I was lucky because most of the funds I invested in made money. That is not true for everybody, the funds my wife invested in never made any money even though it is more than ten years. Most fund managers would like you to believe that if you invest in mutual fund for at least five years, you will at least be in the black but that is not always the case. It helps if you get help from someone who are familiar with the funds and are not just pushing the funds to earn commission from the sale.
My parents approach to investment was to focus on capital gain and not on dividend. To them, capital loss and gain is a lot more significant compared to dividend. Consequently, they feel that dividend is not significant. I tried this approach for a while. I had some successes and failures with this approach. I used technical charts to help me make most of the decisions. I observed my parents and often my father would share with me charts that were accurate in predicting rising prices and falling prices. However, my mum depend too much on rumors and emotion.
I attended a technical training course which includes weekly follow up meeting. A few of the members were very successful in their predictions and made money but there were also those who did not. However, the successful ones were mostly traders.
Selecting investment based on dividend yield has been a better approach for me. I managed to get a few 10-baggers with this approach. One thing I noticed in Malaysian Market is that most of this 10-baggers when it goes up in price, it never comes down. Unfortunately, I sold some of them because my parents would nag me about selling them and lock in the profit. Had I kept those shares, I would continue to enjoy the high dividend yield. I realize that it is not their fault and ultimate decision should be mine since I am responsible for my investment.
I learned from one of my colleague that he has a target dividend cash flow for his retirement. I agree with him, at the end of the day, if our dividend can sustain our lifestyle we do not need to worry about running out of money. In order to achieve this, it is important to diversify since it is difficult to predict if the instruments we select can maintain their dividend in the future.
One challenge is what to do when the share prices around the world are falling? How will it impact the companies I invested in? Should I sell and buy back later? I found that if I sell, I am not disciplined enough to buy the shares back later or the shares go above the price I sold it at.
It is extremely difficult to decide. In one situation, I cut loss on one counter at $8 and then see it go all the way up to $20. In another situation, I held a counter and watch it fall from $200 down to $50 before I finally cut my losses.
Investment is difficult and unpredictable and I am still learning and trying to figure out which approach works best for me.