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Keep a simple strategy

/ 05:10 AM January 02, 2018

At the risk of sounding like a broken record, I’m again recommending for 2018 the investment play done by my friend last year using a simple investing model. This model gave him a return that was way above the average rate of return of the market in 2017.

The investing model was an adaptation of the “Dogs of the Dow” concept, which involved selecting the 10 top stocks of the Dow Jones Industrial Average (DJIA) with the highest dividend yields. In our case, this would be the top 10 dividend-yielding component stocks of the Philippine Stock Exchange index (PSEi).

Aside from paying regular and “often steadily increasing dividends,” these stocks may “account for the majority of overall returns generated.” This usually occurs in periods of low interest rates like how it happened in the previous years, when dividend yields “exceeded those of guaranteed instruments such as treasury bills or certificate of deposits.”

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Another lesson learned from my friend’s experience was giving more time to preparation. His success was not only attributable to the simplicity of the investing model but also to how he prepared himself physically and mentally.

His first step was to clean up the clutter on his desk. He gathered the various office supplies and unused writing papers scattered in his study room and removed stacks of books and magazines on his desk.

The chore, he said, took strong determination as even the act of deciding to do it was a problem. But when he finished the task, he felt accomplished and his outlook cleared, he added.

His next step was to make his study room more cozy and roomy by getting rid of bulky and obsolete office equipment. He, instead, invested in smaller but more effective office gadgets and furniture that help create a relaxing and refreshing workplace.

The third was to computerize his market punting. Making use of a simple Excel record that follows the progress of price gains or losses of his stock positions improved his decision-making ability.

He said the use of such a system made his ability to decide when to buy or to sell became more timely and easier. Before, he was dependent on tips from other people which made him more of a loser than a winner.

He also applied the two simple worksheets recommended by Jason Kelly in his book, “The Neatest Little Guide to Stock Market Investing,” that could improve one’s ability to know when to buy or sell. These were the “stocks to watch worksheet” and “reasons and limits worksheet.

The fourth was to tap “cloud” services. This is helpful to those who are actively trading but likes to travel. You can access and work on your files through the “cloud,” wherever you are.

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The fifth was to get rid of materials that he had accumulated from social and related events. He is a member of some civic organization and has attended many trade shows, conferences and other industry events during the year.

The last was to keep things that are not only helpful but also give him joy. According to him, “these may include things that make you creative or more productive or propel you forward or hold you back.”

For more insights on this, he recommends that you take hold of the book entitled “The Life-Changing Magic of Tidying Up: The Japanese Art of Decluttering and Organizing” by Marie Kondo. It’s a bestseller and very good read on the subject.

Bottom line spin

The year 2018 may look very prospective with internal programs being put in place together with the improving outlook in the world’s major economies. Yet, things are not yet all clear.

To recall, the market fell in 2014 from the weight of an average price-earnings multiple (P/E ratio) of 20.13x. In 2015, it again fell, from the weight of an average P/E ratio of 19.48x. In 2016, it likewise capitulated under the weight of a P/E ratio of 17.90x. But the market closed high in 2017 on a price earnings multiple of at least 22x.

In this case, be prepared for any wrong turn by keeping things organized and keep a simple strategy in 2018.

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TAGS: Dogs of the Dow, Philippine Stock Exchange index (PSEi), strategy
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