There are many things that I like about the stock market. But perhaps the one attribute I like more than anything is its versatility. Growth investors can look at the stock market and immediately identify a host of companies that have the potential to grow. Meanwhile, blue-sky investors could scan down the same list of shares and see many as-yet untapped companies that could deliver pleasant surprises in years to come. As an unashamed income investor, I see lots of opportunities to generate regular and growing streams of cash from shares. Consequently, I have set myself a challenge -…
Growth investors can look at the stock market and immediately identify a host of companies that have the potential to grow. Meanwhile, blue-sky investors could scan down the same list of shares and see many as-yet untapped companies that could deliver pleasant surprises in years to come.
As an unashamed income investor, I see lots of opportunities to generate regular and growing streams of cash from shares.
Consequently, I have set myself a challenge – to build a portfolio of Singapore stocks that could pay me regular and increasing dividends over time. And by regular, I mean regular – each and every calendar month.
My personal ATM
I already have something similar in place, based around a portfolio of UK stocks. I call it my personal ATM. It took a little while to put together. But now that it is complete, it can be a joy to behold, even if I say so myself.
My low-maintenance fund of stocks generates a monthly income. In some months I might get paid a little more, while in other months I might get a little less. But every month at least one dividend cheque drops into in my bank account.
What is interesting is that over the years, the quantity of shares in my portfolio has grown, organically. In other words, while the value of my portfolio might wax and wane, the number of shares I actually own has been steadily increasing.
What’s happened is that the shares, which I originally bought, have generated cash, which I then use to buy more shares. Those shares together with the ones that I already own then go on to generate even more shares.
The pleasant downside
It is called compounding, which Einstein reportedly remarked as the eighth wonder of the world.
The pleasant downside – if that isn’t a total contradiction in terms – is that I have to find a home for the new money every month. I need to allocate the extra capital generated, in the best possible way, in readiness for the next time that dividends are dished out.
Constructing a similar portfolio based around Singapore stocks has proved a little challenging, though. Yes, it has.
The difficulty has not been caused by a paucity of income-producing stocks. Far from it – there are plenty of those for everyone. Nor is it because of insufficient sectors to construct a properly-diversified portfolio. Instead, it is because of Singapore’s rules regarding lot sizes, which is a throwback to the dark ages of stock market trading.
The restriction to buy and sell at least one lot – 1,000 shares – at a time is both archaic and restrictive. Constructing a balanced portfolio should always be about picking shares that are best-of-breed rather than settling for second-best stocks.
An acquaintance of mine recently pointed out that building a portfolio of shares can be like cooking. When we prepare food, we aim to buy the best ingredients which, when put together properly, should produce a delightful dish. I totally agree.
But let’s say your recipe requires a small quantity of mutton. Let’s also assume that your local butcher is only prepared to sell you an entire sheep rather than the half-a-kilo of meat that you require. Nothing could be more soul-destroying.
Thankfully, things may change for the better in Singapore, when lot sizes could be cut to something more sensible. That day cannot come soon enough for me.
Imagine being able to choose shares based on valuation rather than on price. Imagine if shares such Keppel Corporation (SGX: BN4), United Overseas Bank (SGX: U11) and Jardine Strategic Holdings (SGX: U11), which cost around $10, $20 and $30 a pop respectively, became attainable to everyone.
Investing should be for everyone and not just for those who have piles of cash at their disposal.
This weekend I am cooking a mutton curry. So, if you should see me walking down Serangoon Road with a sheep in tow, then it might be because my butcher has decided to set a minimum lot size of one sheep per order. I doubt if he will ever do that. He’s much too smart to do something so outrageous.
This article first appeared in Take Stock Singapore
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