15HWW New Investment Strategy: Part I – Why I Am Not Picking Individual Stocks Anymore

As I have said many times before, this was originally supposed to be part of an e-book. However, since I anticipate too much effort and time being spent on designing the book and thinking over how best to distribute it, I have decided to shorten the content and publish it over 3 posts instead.

Do look out for the two remaining posts over the next couple of weeks!


Background

My first foray in the stock market happened in November 2010, half a year before my graduation. Using some of my savings, I plonked down $6,200 to purchase 10,000 shares of Kingsmen Creatives. (Interestingly, right now, even after 5 years down the road, I am still holding on to this particular stock.)

Just like almost every other person, I believed that I had the foresight to pick individual stocks and beat the market’s return. Ploughing through listed companies’ annual reports during my somewhat slack last term in university, I proceeded to add more undervalued stocks to my portfolio over the next few months and then years.

And my arrogance (somewhat unfortunately) was validated. In fact, at one point in time, about two years ago, the portfolio was achieving a CAGR of 19% and I was outperforming the STI ETF by close to 10%!

cartoon the simpsons homer simpson stupid genius

So it was not surprising that I abandoned another strategy I had concurrently pursued in late 2010: A Regular Savings Plan (RSP) into the STI ETF. After all, in comparison, a 4% annual return after 3 years was pretty modest and probably nothing to shout about.

Why I Wrote This E-Book

And yes, to date, I have beaten the local STI ETF and achieved above-average returns.

While the STI ETF has remained largely flat for the past 5 years and probably returned slightly less than 3% in dividends every year, my portfolio of stocks has achieved an annual return of approximately 5%.

At this point in time, you’re probably thinking that I could be the investment guru that you’ve been waiting for eons and that I made the right choice 5 years back to pursue active investing.

And so maybe you might be expecting me to dispense some stock/investment tips in the rest of this book to help you beat the market’s return.

But sadly, nothing can be further away from that.

On hindsight, I believe the relative success for the past 5 years has more to do with luck rather than any hard work on my part. Therefore, I am no investment expert and to be honest, I actually possess nothing that qualifies me to give investment or financial advice to anyone.

For the past 3 years on www.my15hourworkweek.com, I have just been writing about whatever that works for me. Be it tracking my expenses every month to how I managed to quarter-retire at age 29. From the responses I have received so far, it seems that many have benefited somewhat from my sharing.

And because my current investment approach isn’t going all too well, I spent quite some time a few months ago to formulate a new, better and more sustainable investment strategy.

In the end, the altruistic side of me had this thought:
“Why not write an E-Book on this and share it with your readers?”

A New Sustainable Investment Strategy

What’s Wrong & The Four Guiding Principles

On the investment front, things actually started going downhill about 2 years ago. And paradoxically, that was exactly the point when my savings were bumping up at an increasing rate.

Then, as the investment portfolio headed towards the $200,000 mark, I noticed my balls shrinking ever so slightly, especially with regards to allocating more money into the existing stocks I held.

scared mario super mario panic

When I had $20k, I had no qualms just holding 4-5 stocks. However, I realised that with $200k, I had an urge for more diversification, and 10 stocks became way too little.

I found out I rarely had the conviction to put in more than 10% or $20,000 into a single business, and as the funds increased, I ended up holding close to 20 stocks by the end of 2014.

Not surprising since $200k is a significant sum to me and will go a long way towards fulfilling my semi-retirement goal. If I was given a 50/50 bet that would either double the amount or halve it, I definitely wouldn’t go anywhere near that bet.

I was probably deworsifying and no surprises there that my returns also started to converge to the market’s return.

And with 20 companies in the investment portfolio, it became rather time-consuming to keep up with the changes of every company. I skimmed through quarterly reports (that is if I even open them up at all) and when the price of one stock goes down, I realised I had almost-zero conviction to buy more of it and average down.

After 5 years attempting to prospect companies, I also finally recognised that this is not something I intrinsically enjoy. Getting to know how a company really function is interesting enough but I would rather use my time to read other stuff like geopolitics or even fiction rather than detect potential corporate issues lurking in those dreary annual or quarterly reports.

If you have had problem following everything thus far, here’s the simple summary:

  1. Savings were increasing and there were more funds for investments two years ago
  2. The lack of conviction to concentrate on a few stocks meant I had to diversify into more stocks
  3. I had to read up more with more companies, which I don’t intrinsically enjoy doing
  4. Despite more effort, the probability of getting dogged by average (or even below average) investment results becomes higher

How’s that for a problem? Urggh!!!!

Now that you probably have a better understanding of why I thought a new sustainable investment strategy was necessary, I am ready to serve up the main dish! After much time pondering, I recognised that any new approach would need to include these four key ingredients:

  1. Minimise Effort
  2. Diversify Beyond Singapore
  3. Ensure Bearable Volatility
  4. Maintain Respectable Returns

They are what I call my Four Guiding Principles and I will be exploring each of them in detail in the next part. Stay tuned.


It’s a day before the eve of Lunar New Year and here’s wishing everyone a prosperous Monkey year ahead. HUAT ah!

 

 

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    17 thoughts on “15HWW New Investment Strategy: Part I – Why I Am Not Picking Individual Stocks Anymore

      1. My 15 HWW Post author

        Hi MT,

        Thanks for the support!

        This part was ready a long time ago but the next two parts still need quite a bit of touching up. Let’s see if I can publish another one by next week.

    1. Kevin

      “Therefore, I am no investment expert and to be honest, I actually possess nothing that qualifies me to give investment or financial advice to anyone.”

      Hey, that makes two of us! We’re just bloggers!

      Having said that, it is most interesting to read of your evolution from a “small time” to “big time” investor, and I meant it in a good, full-of-respect way. Experiences like these are priceless because we are able to gain your insights without having to actually go through it ourselves. I’m sure your blog has benefitted and inspired many.

      Happy CNY!

      1. My 15 HWW Post author

        Hi Kevin,

        We are just blogging from our experiences. It’s a bonus if a reader can glean something from them!

        Thanks for your kind words. I still think I am far from being considered “big time”. LOL

        Happy CNY to you and your family too!

    2. Jared - SMOL

      15 HWW.

      Ah! Having your paradigm shift moment 😉

      I suspect someone is morphing towards the Permanent Portfolio or Millionaire Teacher direction.

      Yes, do what we enjoy is a lot more fun!

      1. My 15 HWW Post author

        Hi SMOL,

        You are right! It’s not hard to guess the general direction I am moving towards just from this Part I.

    3. Temperament

      If WB and Howard Marks believe that LUCK (God’s Blessings if you are a believer) plays a big part in their life (aka in their investment life too), who are we to say or think otherwise? Even for the non believers.
      But do really “God helps those who help themselves” ?
      i think so.

      1. My 15 HWW Post author

        Hi Temperament,

        I have no doubt that LUCK can be the most important factor in life. I do hope I am humble enough to receive tons of it.

    4. SG Physiotherapist

      Hello,

      Thanks for sharing the challenges you face when you handle a 200k portfolio vs a smaller one. It allows newer investors like myself to learn from you. It seems like you will be taking the index investing approach?(=

      1. My 15 HWW Post author

        Hi SG Physiotherapist,

        A little bit of index investing, a little bit of perm portfolio. The second post should be out within the next two days!

        Just a note, my experience may not be reflective of everyone’s. Some retail investors do very well with a 200k or even a 500k portfolio!

      1. My 15 HWW Post author

        Hi Createwealth 8888,

        Non-core to me? Hmm, maybe you are right! At this moment in time, I am much more focused on my freelance income rather than on stocks. I just feel that if I don’t have the time nor the effort to concentrate, more likely than not, diversification is going to lead to mediocre returns.

        Since I can accept mediocre returns, why not index investing?

    5. Andy

      Hi Mr 15HWW, would you recommend investing a lump sum in STI ETF rather than DCA, assuming I have sufficient capital?

      1. My 15 HWW Post author

        Hi Andy,

        I am actually doing a lump sum in STI ETF periodically.

        I am quite afraid of making a wrong entry if I “all-in” so I tend to break into 3 or 4 chunks. Perhaps if your capital is big enough, you can consider that?

        Otherwise, if you feel that it is a fair/or even good entry now, by all means go ahead!