It’s been 7 years and the 15HWW portfolio currently stands at around $430,000. It comprises $350,000 of capital which also means that the remaining $80,000 comes from net profits, dividends and interest from the deployment of the capital.
With sporadic injections of $350,000 of capital over 7 years, a simple proxy would be to assume that we are injecting $50,000 every year which is also equivalent to injecting $12,500 every quarter.
From this set of assumptions, I calculated that our annualised return thus far is 6.0%.
But what would have been the returns and outcome if I did not bother much about the markets and just invested mechanically and systematically into Berkshire B?
Berkshire B’s advantage over the S&P 500 is that as foreigners, there is a dividend tax. This is circumvented since Berkshire has no dividend policy. Moreover, it’s a good substitute to investing in STI ETF since Berkshire is probably as diversified the STI ETF and in fact, provides more geographical diversification.
Lastly, if you don’t think you can outperform Buffett, why not join him? A no-brainer, huh?
1. Since the 15HWW portfolio is currently about 60% invested in equities, for a better apple-to-apple comparison, only $8,000 would be invested into Berk B every quarter.
2. $50 of transaction cost would be added to each purchase. This should also help to cover additional exchange rate and custodian fees for owning a US stock.
3. The remaining $4,500 for each quarter will be parked in cash/bonds that generate 2-3% interest. Let’s assume quite reasonably that $126,000 will grow to become $145,000 at the end of the period.
And here’s the results (screenshots from excel):
7 Observations & Reflections:
- The value of 1,533 shares of Berk B ($394,125) + the value of the cash/bonds ($145,000) gives a final total portfolio value of $539,125 for this hypothetical simulation. The annualised return is about 12.5%.
- If we only focus on Berk B’s annualised return, it is pretty astonishing at 16.3%! At the end of 7 years, the capital of $224,000 invested in Berk B has almost doubled and turned into $394,000. This is one of the biggest benefits of fully participating in a bull market. It would take a very big correction to wipe out all the gains.
- This also means that the US market is likely to be fully valued if not overvalued at this point in time. I am not ruling out the possibility of Berk B to continue its stellar performance for the next few years but seriously, the probability is definitely lower now as compared to 7 years ago.
- Even though 64% ($8000/$12,500) was invested in the market, the equity portion at the end of 7 years has increased to 73% of the portfolio. If I were prudent, I would call for a rebalancing to a more conservative 65/35 split and lock in some gains.
- If we compare 12.5% to 15HWW’s portfolio performance of 6%, that is a BIGGGG difference. It drives home the point that choosing or concentrating on a geographical market matters alot. Even a great stock picker in the local markets would have found it difficult to beat Berk B’s return of 16.3%.
- Purely investing in Berk B would have provided me with an additional $110,000 in my portfolio. That is a big difference and it would matter even more from here onward. Without any further capital injections, at 6% returns, $430,000 would grow to $770,000 in a decade’s time. At 12.5%, $430,000 would grow to $1.4 million after 10 years!
- Investment returns is actually something not within our control. Really. We can only focus on our investment process. The lesson learnt for me was that for my first 7 years, I was too concentrated on the Singapore market, which meant that I missed out on the huge US and global rally. I only had an epiphany late in 2015 to simplify my investments and diversify out of Singapore. Right now, I have a small exposure to both the US and HK markets and I am looking to increase them slowly in the next few years.