Now that the year 2017 had concluded, there is no doubt that it was a bull market year (with hindsight). Kuala Lumpur Composite Index (KLCI) returned 9.44%.
If someone were to tell me at the beginning of 2017 that it would be a bullish year, I would not believe it since the market dropped a lot at the starting of the year. Now the history is made, I can say with 100% certainty and clarity that it was a bullish year.
Below is my investment return since mid-2013 in Malaysian stock market.
|Year||Annual Return (%)||Benchmark KLCI (%)|
Note 1: The annual return is calculated using XIRR function in Google spreadsheet. XIRR function takes into account the regular cash contributions and withdrawals throughout the year so that only the growth of the investment counts.
Note 2: All cash deposited in my investment account is considered invested capital even though it is not fully invested. This is to simplify the calculation. Although this will drag the performance, I prefer understatement rather than overstatement.
Here is a chart to visualise the evolution of the investment.
Note 3: The red line shows the actual cash contributions from me after deducting the dividends. The blue line is used as the baseline for the calculation of the annual returns in the table above. Therefore the annual returns calculated in the table above din't include dividend returns.
The first two years (2013 and 2014) of investment were the hardest as can be seen from the table and the chart above. The return was peanut and it was worse than the return from a fixed deposit which guaranteed 3% per annum.
If taking all data from all those years (2013 to 2017) into consideration, my investment returns around 11.4% per annum on average (again I am using XIRR function to calculate the result excluding dividends).
With no measurement, there will be no objectivity and improvement. The table and chart above help me to focus on the right things and keep going. If I could measure the problem, I could solve it. At least I think so.
The importance of long-term investing
There is an old saying in the investment world, "it is about time in the market, not timing the market, that matters". The longer you stay in the market, the greater the chance of you coming out ahead of the rest.
According to Peter Lynch, by staying longer in the market, you minimise risk of missing out the rising tide. This is true in a sense that the majority of the rises in stock market happens in just a few days out of many years.
100-bagger need time to grow
Here is a few examples to show the magical power of time in investing.
A 1-bagger is a stock that doubles. A 100-bagger is a stock that grows 100 times.
Amazon, Google and Apple are examples of 100-baggers. If you bought Apple in the early 2000 and held it for 16 years, you would have a 160-bagger.
In Bursa Malaysia, Public Bank and Maybank are example of 100-baggers.
There are many more examples of 100-baggers as documented in 100 to 1 in the Stock Market: A Distinguished Security Analyst Tells How to Make More of Your Investment Opportunities by Thomas William Phelps. The book provides 365 examples over a 40-years period (which averages around nine opportunities each year).
The law of continuity dictates that in order for a stock to become a 100-bagger, it must first become a 1-bagger at some point in the past. Then a 2-bagger, ... etc until it becomes a 100-bagger.
The stocks shown in the charts above fulfil this criteria only if you hold them through thick and thin.
Some people will succeed wildly. Some will die prematurely. This is the law of nature. Life is never fair. With the same reason, some stocks will succeed wildly (e.g. become 100-bagger) and I have no control of that. I feel helpless that I cannot stop that from happening.
The only thing meaningful to do is to profit from them. This is a win-win solution.
Cutting the profit short is like firing your top performers.
Hire company as an employee
As a CEO of your life, you should make very few decisions: the important decisions. Hiring a superstar team (creating a high performance portfolio) is a critically important decision. Hiring and firing (buying and selling) are no laughing matter.
You should hire for attitude and train for skill. You hire only those who fulfil your criteria of having good behaviour (companies that are consistent and with good track records). The skill (technology) can be learnt on the job. They will only get better and better each year.
You should hire someone way smarter than you. Usually good companies have longer business experience than me. If they are willing to work for me, I don't mind (companies that are willing to work for you are the publicly traded companies).
I won't fire them if they underperform a year or two. Situation changes, let the smart creatives figure out their own ways. Let the founders decide. You hire them to think.
Throughout my short business (investment) life (less than five years), there were three employees (companies JTINTER, CENBOND and YTLE) that decided to quit for greener pasture (privatisation). In all three cases, I was given good prices which were a win-win situation for everyone involved.
You design your team (portfolio) such that each member complements each other.
Alone, they are nothing special. Together, as a team, they accomplish big things. Great team is the fountain of wealth. They definitely can out-live me.
Note 4: The hiring best practices are borrowed from the book How Google Works by Eric Schmidt and Jonathan Rosenberg.
Investment is a business. Learn how to run a business in order to better manage a portfolio.
The earth is spinning, the universe is expanding and this experiment is on-going.