Reflections – Brookfield Asset Management (BAM)

On 27 Feb 2018, I bought (on my personal portfolio) 16 shares of Brookfield Asset Management (BAM) at USD40.15 each. However, I’ve come to realise that the stock offers very low expected returns based on my current valuation model.

Screen Shot 2018-03-11 at 7.47.28 pm
Price as of 11 Mar 2018. Expected 10year annual return is 8%, below my 12% target.

I got the idea for this stock from an article I read on SeekingAlpha (I can’t remember the title of the article anymore) and I still believe that the company is a stable growing company with strong dividend growth prospects. However, from the above model, I now evaluate this company to be considerably much slower growth than most of the alternative investments I am considering.

Besides the relatively slower growth prospects of the company, a bigger problem is that I am overweight on REITs and am looking to diversify into other sectors of the economy.

Hence, I have decided to sell off my BAM shares.

(Another problem is that I am actually very unfamiliar with the business model and the growth prospects of this company. Apparently, I have based my investment mostly on the recommendation made by the SeekingAlpha article without doing sufficient research of my own. But this is not one of the reasons for me choosing to sell this stock, although this is still a relevant learning point.)

This serves as a major learning point for me. Many professionals recommend to reduce the number of transactions made in order to minimise brokerage costs. But in this situation, I’ve not only bought and sold the shares for basically no returns but I’ve also incurred a brokerage fee in the process. Upon further reflection, I recognise that (1) I was too hasty to buy the stock and as a result, (2) did not do sufficient research on the company and (3) did not consider the sector diversification of my portfolio.

Perhaps this will remind me to always do in-depth research on all aspects of the company to understand both its strengths and its problems before making any investment decisions.


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