Watching stock holdings 4 comments

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When we buy consumer items, we will have an idea of what uses we wish to derive from it, and we will look to derive maximum utility from the item. That is why a book that is borrowed from the library differs from one that is paid for. Similarly when we buy capital assets, say houses, we think (usually beforehand, since it's a heavy sum) about ways to derive utility from it eg. making it comfortable for living, renting it out for money, maybe sell off after the minimum 5 years and upgrade.

It certainly makes sense then, to have an idea what you plan to do with a stock that you have bought, which is just another (financial) asset. It is usually advised to have a pre-investing "ritual", which consists of general stuff like finding out more about the company behind the stock, watching for a good price entry point etc; to specifics such as setting an initial price target, the targeted investment time horizon, and even taking a deep breath before hitting the Buy button. I practise the last-mentioned as it gives me an instant to run through a general SWOT (Strengths,Weaknesses,Opportunities,Threats) analysis in my mind before committing myself.

Once in, do you stop watching your stock? Yes and no. Yes because you should stop placing overly strong emphasis on monitoring its everyday share price, unless your investment time horizon is a few days. Why watch it hawkishly unless you're planning a swift exit strategy? However, the "No" answer is because you still have to watch the economic, sector and corporate developments that will have an impact on your stock. In short, watch the company behind the stock.

Most people often complain that they don't have the time to monitor their stock holdings. How to, with all the work in the office and the family to tend to at night? My experience is that often you can reduce your stockwatch process to just one or two general indicators, which might vary daily, monthly or quarterly. For example, if you're monitoring a coffee distributor like Tsit Wing or Super Coffee, it makes sense that high and rising coffee prices, as it is today, are going to limit profit margin growth. Daily coffee prices are shown on the ICO (International Coffee Organisation) website. If you're monitoring metal stamping companies like Amtek or Seksun, steel or aluminium price trends will be important and they can be checked on commodities websites. Of course, use of such indicators is an art; the investor has to have an idea of which factors are primarily important to the topline and bottomline of the company before selecting the indicator(s) to monitor. It might not be the input prices that are important; it could be prices to customer (eg. shipping rates for shippers), customer sentiment (for retailers), even proxy share prices (for conglomerates whose individual subsidiaries are listed as well; Sembcorp is a good example that comes to mind).

Financial statements are must-reads no matter how busy the investor is. It is really great that now we're moving towards quarterly reports (poor auditors though), because it allows greater transparency to investors; and on their end, the companies are likely to exercise greater prudence and scrutiny of their operations. Accounting knowledge needed to read these? That's another story.