It’s been 5 years since I started into the passive income stream of investing. Changes have been made to my portfolio and money has been made or lost. I mean I didn’t enter unprepared; I have read some investment books and soaked up advice of investment gurus like Warren Buffet and the like. But nothing is compared to the actual experience of seeing your portfolio register actual gains or losses. I have made mistakes but lucky for me, overall throughout the years, I managed to make money out of my investments. I am documenting these mistakes for the benefit of readers who are just starting out in their investment journey. Without further ado, let’s get started.
Mistake 1: Chasing the dividend yield trap
Especially for a REITs income investor, we all want to get more buck out of our cash. So we scan for enticing yields like 8% – 10% and put our money into these counters. Trouble is, such high yields have inherent risks. Like unsustainable dividends and capital losses when the counter price decline due to poor performance. If you all didn’t know by now, I am a Singaporean so my investments are in the Singapore stock market. I still remember buying shares of industrial REITs like Cache Logistics Trust and SoilbuildBiz REIT for their high yields. Initially, they delivered. The yields were good. Then came the oversupply of industrial space in Singapore, industrial rents were affected. They cut the dividend payout and issued more shares to raise capital to fund the buying of new industrial properties. The price slumped and as a result, I suffered capital losses and dividend cut. But luckily, I held on the counter for a few years before this happened. My overall return on investment for this counters were still positive. I sold them eventually.
There was a period of time that I was hungry for yield. So, I looked beyond REITs and delved into business trusts. There was one trust that had a crazy dividend yield. It was Asian Pay TV Trust. It had a mouth-watering yield of about 11% at this time of writing. I dumped some of my spare cash into it. It wasn’t long before the price start to drop. I was fortunate to have the foresight to sell it before it dropped to a trough. I wondered what happened to all of the investors who bought and held on to it, praying that it will recover one day.
Moral of story, great riches don’t happen overnight. Be content with what you get from your investments. My opinion is that a dividend yield of 4% – 5% for REITs is quite sustainable. Then again, its my opinion. Other people may have different experience from investing so its your judgement to see if what works for me works for you too.
Mistake 2: Unable to wait for the right opportunities
Waiting for the right time to invest is one of the wisest thing you can do to your investment journey to generate positive returns. However, it is counter intuitive. Humans desire action to be accomplished as soon as possible. I was one of those investors who wanted to take quick action as soon as I had the spare savings to invest. I mean, who doesn’t want to be one step closer to financial freedom? It’s been said that the road to hell was paved with good intentions. Last month, I bought some defensive stock like Sheng Siong and Thai Beverage when the market is at a all-time high. Worse still, one of them was cum dividend. “What’s wrong with that?” you may ask. Because counters who are going cum dividend usually fetch a higher price than those without such corporate action.
So when the market declined (and I am referring to the Straits Time Index) this month, and the stock went ex dividend, the price fell. I suffered an unrealized capital loss. Fortunately, I did not put a lot of my funds at these 2 counters, so t he loss was limited. And I had dividends to cushion the loss too. But what I am saying here is if you can resist the temptation to put your funds into the market at the wrong time, you can save yourself unnecessary losses when it falls.
Did you make any mistakes in your investing journey? Feel free to share any experience in the comments section below. There’s no need to feel embarrassed; we all learn from our mistakes…