Tag Archives: Finance

2018 Stock Market Returns of Lump Sum Buy-and-Forget Investment Strategy for The Last Five Years

This is a documentation about an on-going experiment that I started since November 2013.

In November 2013, I opened a separate HLeBroking (Hong Leong Investment Bank Berhad) trading account to do a lump sum (one time) investment in Bursa Malaysia. I chose buy-and-forget as the strategy for this experiment because it requires the minimal effort to maintain.

The portfolio contains 11 stocks from different industries for diversification purposes.

Among the stocks that I bought are from consumer products (APOLLO, DLADY, MAGNI, NESTLE), trading/services (BTECH, MARCO), properties (HUAYANG, UOADEV), finance (MBSB), industrial products (SKPRES) and REITs (TWRREIT) sectors.

The portfolio is skewed heavily towards companies in consumer products sector. This is the sector that is the most immune to negative market volatility.

The amount I had at the time was RM 35008 and was distributed about equally among all stocks (except BTECH which was bought with the remainder of the available sum).

I bought most of the above stocks during the period between November 2013 and January 2014. And I never touched the account since then.

From the date of the first stock purchase (on 20 November 2013) till now (8 September 2018), it has been roughly 4.8 years (1753 days to be exact).

So how is the performance of the buy-and-forget portfolio?

Below is the snapshot of the account as of 8 September 2018 (you can click on the image to get a closer look):

HLeBroking Trading Account as of 8 September 2018

HLeBroking Trading Account as of 8 September 2018

The current market value of the portfolio is RM 53799.86, an increase of 54.03 % from invested capital of RM 35008.

This translates to roughly 9.36 % CAGR (Compound Annual Growth Rate).

Here is the formula to calculate CAGR:

    \[ r = \sqrt[n]{\frac{F}{P}} - 1 \]

It is derived from this formula:

    \[ F = P*(1 + r)^{n} \]

Where:
F is the current market value,
P is the invested capital,
r is the rate of return or CAGR,
n is the number of years.

Things to take notes

Based on the screenshot above, we can see that some stocks have done poorly (e.g. HUAYANG -70.09 %, MBSB -54.89 %, TWRREIT -37.25 %) while some stocks have done extraordinarily well (e.g.: SKPRES +315.87 %, MAGNI +206.53 %, NESTLE +116.2 %).

This is consistent with the saying that there are ups and downs in the market, which is absolutely normal and expected. We should have the stomach to withstand the price drop of the companies in our portfolio.

However, even with the ups and downs in the market, the portfolio turns out fine with more than 50 % gain till date. This is due to the fact that the downside is limited but the upside is unlimited.

The most a stock can drop is to zero while there is no limit to how much a stock can grow.

The upside has more than covered for the downside which is the case here.

Another way to interpret the result is that there are more value being created in the market than the value being destroyed in the market. Human is a highly creative living being and there is no limit to how much value can be created. This means there is an infinite value waiting to be released in the market.

In a nutshell, stock market is a favourable game to play.

It gets even better because I haven’t taken into account the dividends paid by these stocks.

Dividends received

Here is the table that shows all the dividends received during these 4.8 years.

Dividend from HLeBroking

DateCompanyCodeTypePayment (RM)
09/01/2015APOLLO6432150
06/01/2016APOLLO6432150
09/01/2017APOLLO6432First and final180
09/01/2018APOLLO6432First and final150
23/06/2016BTECH0011Final6.3
28/09/2016BTECH0011Interim7.3
23/06/2017BTECH0011Final8
28/09/2017BTECH00118
22/06/2018BTECH0011Final8
20/05/2014DLADY3026110
26/12/2014DLADY3026Interim and special110
19/05/2015DLADY3026Interim and special110
18/12/2015DLADY3026Interim and special110
19/05/2016DLADY3026110
29/12/2016DLADY3026Interim & special110
21/04/2017DLADY3026110
31/05/2017DLADY3026Special60
27/12/2017DLADY3026110
25/05/2018DLADY3026110
07/04/2014HUAYANG506270
15/10/2014HUAYANG506298
12/03/2015HUAYANG506270
16/10/2015HUAYANG5062112
21/04/2016HUAYANG506270
17/04/2017HUAYANG506237.32
17/10/2017HUAYANG5062Final37.32
30/04/2014MAGNI708750
06/11/2014MAGNI708780
20/04/2015MAGNI708750
20/11/2015MAGNI7087100
26/01/2016MAGNI7087120
26/04/2016MAGNI708775
28/10/2016MAGNI7087150
13/01/2017MAGNI7087Second & special75
12/04/2017MAGNI7087Special and interim90
27/10/2017MAGNI7087Final and special157.5
12/01/2018MAGNI708767.5
12/04/2018MAGNI7087Interim and special105
28/02/2014MARCO3514Third interim159.2
15/07/2015MARCO3514First and final39.8
16/06/2016MARCO3514First & final139.3
30/06/2017MARCO3514First and final99.5
13/07/2018MARCO3514First and final99.5
05/06/2014MBSB1171Final90
28/05/2015MBSB1171Final and special216
16/06/2016MBSB1171Final54
22/06/2017MBSB1171Final54
03/08/2018MBSB1171Final90
05/06/2014NESTLE4707175
24/09/2014NESTLE470760
27/05/2015NESTLE4707175
10/09/2015NESTLE470765
02/12/2015NESTLE470765
02/06/2016NESTLE4707130
29/09/2016NESTLE470770
02/12/2016NESTLE4707Second interim70
08/06/2017NESTLE4707Final130
21/09/2017NESTLE470770
14/12/2017NESTLE470770
31/05/2018NESTLE4707Final135
27/10/2014SKPRES7155Final161.5
26/10/2015SKPRES7155Final186.2
27/09/2016SKPRES7155Final332.5
27/10/2017SKPRES7155Final394.25
28/02/2014TWRREIT511170.73
27/08/2014TWRREIT511148.26
27/02/2015TWRREIT511140.36
28/08/2015TWRREIT511140.32
29/02/2016TWRREIT5111Final47.28
14/09/2016TWRREIT5111Interim40.32
28/02/2017TWRREIT511147.1
06/09/2017TWRREIT511140.32
28/02/2018TWRREIT511135.39
30/08/2018TWRREIT511126.46
17/07/2014UOADEV5200195
14/07/2015UOADEV5200195
15/07/2016UOADEV5200225
14/07/2017UOADEV5200First and final225
23/07/2018UOADEV5200First and final225
Dividend received between 20 November 2013 and 8 September 2018

In total, I received RM 8164.53 in dividends from 79 payments throughout this period.

The dividends constitute about 23.32 % (8164.53/35008) of the invested capital. This means about 23.32 % of my capital has been returned to me during this period.

Dividends can further reduce the downside of stock investment since I will never lose all my invested capital.

The average dividend yield is about 4.86 % (8164.53/4.8/35008).

This means the investment is generating an average of RM 141.74 of dividend per month (8164.53/4.8/12).

Taking into account the dividends, the CAGR becomes 12.62 %, a very satisfactory return for me given the minimal effort from me.

Using the rule of 72, the capital will double in about 5.7 years (72/12.62). This is less than a year from now (5.7 – 4.8 = 0.9 year) where my portfolio would have a market value of RM 2 * 35008 (including dividends). However, this is not guaranteed. There is always uncertainty in the market.

Final thoughts

In order to run this experiment, I need to have money that I don’t need. Money, the less you need it now, the more you will have it later.

Let the good companies work for you. Let your money works for you.

Capitalism works. Human is inherently motivated to create value. It is worth to invest in the market.

Finally, ignore day-to-day market price fluctuation since it is not meaningful. Let good companies take care of themselves.

Disclaimer: Don’t follow blindly the portfolio above. Understand what you buy to reduce your risk.





2017 was indeed a Bullish Year in Hindsight

I made a post on a new blogging platform steemit. You can read the post here 2017 was indeed a bullish year in hindsight.

Steemit is a blogging and social networking website on top of the Steem blockchain database. The Steem blockchain produces Steem and Steem Dollars which are tradeable tokens users obtain for posting, discovering, and commenting on interesting content.

Low Hanging Fruits

Low Hanging Fruit is Luck in Disguise

Low hanging fruit is tasty. It is actually tastier than the one hanging higher on the same tree.

Fruits can grow on any branch of a tree. Usually, the fruit quality is distributed evenly all over a tree (e.g.: rambutan). However, based on the position or altitude of the fruits, some are easier to reach than others. This is because fruit tree can sometimes grow really tall like a skyscraper.

Those within arm reach are easier to harvest than those hanging high at the top of the tree. Therefore, the cost of harvesting is higher for the higher hanging fruits. Not to mention that the risk of injury is also higher if there were accident when climbing the tree.

When the fruit quality is about the same, I prefer the low hanging fruit over high hanging fruit. It is tastier because the effort spent in harvesting is lesser. When there are enough low hanging fruits, I can safely ignore the high hanging ones.

Low hanging fruit is luck in disguise

Life is uncertain because it is complicated and governed by randomness. I spent a lot of time thinking about luck and randomness in life. And I find two factors that have great influence on luck:

  • Initial condition
  • Amount of accumulated resources

Factor one: initial condition

Where you started matters. Some places will have more resources than others. For instance, some places have gold mines and some others have oil. Some are deserts.

Initial condition even determines how successful a person can be. I read the following example from an article.

Imagine two equally capable graduates looking to become a professor at a highly reputable university. However, the university only has one spot available. Since both graduates are equally qualified, one of them will be chosen while the other need to look else where for work (e.g.: at a lower rank university).

The graduate who becomes a professor at the highly reputable university has greater access to resources: better students therefore lesser work at teaching, better tools and equipments for research therefore more productive and more academic papers are published and becomes more well-known in the academic circle.

The other graduate who becomes a professor at a lower rank university need to work and teach harder since the university has looser criteria for selecting students. The professor is also less productive due to lack of resources and time for research.

In the end, one professor is judged as extremely successful while the other not so due to the initial distribution.

In a poker game, just like in the game of life, people are being dealt with different cards. Those cards determine the initial condition.

Where the fruits are being distributed over a tree is the initial condition. Where you are located is also the initial condition.

Factor two: amount of accumulated resources

Different initial conditions put different people into power. CEO has great access to company’s resources and therefore power to change the environment the way she likes.

No matter where you started, you can accumulate resources that are available to you by focusing on the low hanging fruits. You can collect as much low hanging fruits as possible that are accessible to you. By the time you accumulated enough resources, you can create your own luck.

Having resources allows you to change your environment. In other words, the more resources you have, the luckier you get. I can even go as far as claiming that how much resources you have is a measure of how much luck you get.

Luck is proportional to the amount of resources that you have.

Low hanging fruit is luck in disguise.

Harvesting low hanging fruits is an optimal strategy to maximising wealth

Something that you had tried very hard to obtain can cost a lot. Trying too hard is not the right thing to do given that you have limited resources.

The point of low hanging fruit strategy is not to try too hard but to identify your low hanging fruit as not to waste it: the low hanging fruit that is available uniquely to you given your initial condition.

Low hanging fruit is available for you and is what you can easily reach for. It is your advantage. It is what money cannot buy. It is your edge.

Everyone is in his/her own unique position in space and time to exploit his/her low hanging fruit available to him/her.

Harvesting low hanging fruits significantly reduces risk of failure. It is robust. It gives margin of safety as in providing high return with low risk.

In computer science’s term, low hanging fruit has low computational cost. It is something that is easy to do.

When there is too much to do, pick the easiest tasks with the highest payoff. Over time, you will accumulate much more resources this way.

Overall, we have done better by avoiding dragons than by slaying them. – Warren Buffett

Do what you do best and is the easiest to you

I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over. – Warren Buffett

When you are a giant, you can easily walk over a 1-foot bar. You can even help others to cross the 1-foot bar. It is harder when you encounter a 7-foot bar. In this case, you need other giants to help.

Everyone is unique and has different strength. Some might be a giant in one domain but weak in others as illustrated in table below.

Person/Domain Domain A Domain B
Person 1 Giant Dwarf
Person 2 Dwarf Giant

If I have seen further than others, it is by standing upon the shoulders of giants. – Isaac Newton

Do what you do best as you are already a giant in your domain. You can easily cross as many 1-foot bars as possible in your domains.

The 1-foot bars are your low hanging fruits.

Over time, you have gone a long way and collected more resources and you might be able to grow and become a giant in other domains. The condition will change, just as the initial condition changes at different point in time and space.

Look for the obvious things. Things that are obvious to you may not be obvious to others. You can see opportunities where others don’t.

Be the best in your domain is rewarding.

The will always be low hanging fruits

In the stock market, whenever there is someone saying the market is overvalued, other will point out that he/she is still able to find undervalued stocks and profit from them.

Exceptions are everywhere. Exceptions are part of our life. It is part of the rule. There will always be exceptions as there are outliers in a normal distribution.

Outlier

Outlier

The market is big. You will get different conclusion based on how you approach your search and also based on your initial condition.

Peter Lynch’s famous advice is to buy what you know. This can be translated into grab your low hanging fruit relative to you.

Warren Buffett has been harvesting low hanging fruits for his lifetime with unbreakable investment record.

Exceptions are low hanging fruits in disguise. Find your exceptions. Your initial condition may put you at exceptions.

Exceptions are few and rare

There will not be many exceptions. They will not be available all the time. But it is better to have one exceptionally good idea from time to time than to have 100 average ideas all at the same time. The former is much more enjoyable while the latter is overwhelming.

That is the beauty of exceptions. That is why low hanging fruit is tastier.

Final thought

You will find something as long as you are searching. Low hanging fruits are everywhere.

Exception is part of the rule. Whenever other says there is no hope, you know better.

Explore and exploit low hanging fruits. It is your best bet. It provides a framework for optimal decision making for maximising the use of resources.

The best thing in life is free. The second best thing is cheap. The worst thing is expensive. Low hanging fruit is cheap and sometimes it is free. Look for free things.

Hunt for low hanging fruits. The world is your playground.