Thursday, 14 May 2009

The story of Uncle Chua

How did Uncle Chua accumulate so much wealth in his portfolio?

Uncle Chua's Portfolio & Dividend Income
Here is Uncle Chua's portfolio & dividend income, reproduced here as accurately as was depicted in the book:
Uncle Chua's portfolio

All the shares he dealt in were ALL blue chip stocks.

In mid-1997, when the Asian Financial Crisis started sweeping across regional markets, Uncle Chua didn't sell a single share. Instead, he started buying shares - again ALL blue chips and ONLY blue chips. He bought bit by bit as the STI index broke one low after another. This was unlike others who began panicking and dumping their shares to preserve what they had left.

Pretty soon, the index was somewhere in the 800-plus region, almost the lowest level then. But many were still convinced that the market could fall further. After all, there was blood on the streets and panic and pessimism everywhere. All news that was coming out was never assuring and very demoralizing.

Uncle Chua's gutsiness and calmness in such a chaotic situation was very puzzling.

However, Uncle Chua's portfolio statement comprised stocks of astronomical value. The most unbelievable part was that his entire portfolio consisted of nothing else but blue chip stocks. There was not even a single junk stock in the list. How did he pick those stocks?

Uncle Chua explained: "I bought some of them as early as in the 60s. I was then in my 50s and retired. I reckoned that I needed to have some sort of passive income and so I made a simple comparison between bank fixed deposits and stock dividends. I decided that the latter offered a better return, and so based on this very simple reasoning, I looked through the Chinese newspapers to select and buy into companies which paid good dividends that would maintain my family."

"Of course, I also made sure that the management team of the companies I bought was committed and acted in favour of shareholder intersts. That's why I asked you today, to tell me what the management said in this annual report about its future palans to steer the company and how much dividends they are proposing this year."

"Those stocks that I have bought also often issued bonus shares. Some even did stock splits, and with the dividends accrued, I reinvested everything back into those stocks I owned. That's how my portfolio grew to this size, but it certainly took me many years..."

Uncle Chua was a rare example of a successful invetor whose winning strategy was simple, direct, clear-cut, straightforward and hassle-free.

Reference: Why am I always Lo$ing in the Stock Market? Publisher: Heritt & Company

Related readings:

Uncle Chua's Portfolio and Dividend Income

Investing Philosophy and Strategy:  Keep It Simple and Safe (KISS)

Best Way to Minimize Risk of Your Portfolio:  Asset Allocation

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