Sunday 14 February 2016

The Evolution of An Investor

2016 marks the 30th year that I have been involved in the stock market. The first 12 years were during my schooling days when I monitored stocks for my father while he was working. The next 18 years were when I invested with my own money after graduation. Looking back at these 30 years, it has been a pretty exciting journey. I experienced the market crashes of 1987 (crash for no good reasons), 1989 (ditto), 1990 (Iraqi invasion of Kuwait), 1997/98 (Asian Financial Crisis), 2000-2003 ( bust, Sep 11 terrorist attack, US accounting scandals and Severe Acute Respiratory Syndrome), 2007/08 (Global Financial Crisis) and potentially another one brewing currently.  In the meantime, I also experienced the super bull run of 1993/94 (Singtel IPO).

Throughout my investing journey, my investment strategies have never stopped evolving. When I first began investing with my own money in 1998, it was a Wild Wild West approach in which I bought stocks that I thought would go up, with no consideration of their earnings history, dividend yields, etc. Needless to say, that approach did not bring me any consistent success in investing. 

In 2001, I took on a different path, thanks to a second-hand book I had picked up fortuitously. The title of the book was "Buffettology", which described the methods Warren Buffett used to analyse stocks. That book set me on the journey of value investing, and the methods described in that book were still used to-date to analyse stocks, even though I am no longer sticking strictly to value investing. That strategy brought me my first consistent investment successes when stocks recovered from the 2000-2003 bear market.

However, sometime after the Global Financial Crisis (GFC) in 2009, I came to realise that while value investing worked, it did not work all the time. Stocks bought before and during the GFC never quite recovered to the levels I had expected. And while there were several multi-baggers achieved through value investing, it also created a number of salted fishes whereby the stock had dropped to almost no value or was delisted. You can refer to How to Get a Multi-Bagger? and The Salted Fishes for a list of multi-baggers and salted fishes up till 2014.

When you realise that a long-held strategy does not work as well as expected and there could be other forces at work influencing your returns, you will be willing to open up your mind to other investment strategies. Beginning in 2011, I ventured into growth stocks at reasonable prices, following the path of Warren Buffett. 

However, there are really not many growth stocks available at reasonable prices. This poses a limit to the growth investing strategy and I started to put some money into turnaround stocks in 2014 and dividend stocks in 2015.

Outside of my cash portfolio, I started contributing to my Supplementary Retirement Scheme (SRS) account in 2006. That created another pool of money for investing. However, I did not want to invest the SRS money the same way as I invested my cash. Instead, I used the SRS account as an experimental lab to test out other ways of investing. That was how I started on Dollar Cost Averaging (DCA) on unit trusts in 2007. The viability of DCA as an investment strategy also lead me to adopt passive investing for my cash portfolio. I started my passive portfolio in 2013 and added a more spicy version of it in 2015. You can refer to The Passive Portfolio and The Anti-Fragile Portfolios for more information.

Despite the diversity in investment strategies, the evolution has not ended yet. A few months ago, I realised that I should begin to learn how to make business investments instead of financial investments. That culminated in a 20% concentration in 1 stock. The recent stock market volatility made this endeavour tougher, but I told myself that if I ever wanted to invest like Warren Buffett, this is something I could not avoid. 

It has been a long 30 years. My investing journey has brought me from the lawless Wild Wild West to the civilisation of value investing to the era of multiple investment strategies co-existing alongside each other. That evolution will continue.

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  1. Replies
    1. Hi SMOL,

      Yes, I have become greyer. Can't be helped ;)

  2. Hi Chin Wai,

    Amazing 30 yrs! Respect. Human life is all about evolution. Imagine ur thinking today is the same as 30 yrs ago?

    By the way, what do u mean by business investments vs financial investments?

    1. Hi Rolf,

      Yes, we have to constantly adapt, in order to break through challenges.

      By financial investments, I mean investing in stocks with good profitability, strong balance sheet and high cashflow. However, I seldom go deeper to understand the factors that give the company its good financial strength. The business investments are to identify and invest in those companies that have strong long-term underlying strengths.

    2. Hi Chin Wai,

      Absolutely! I think entirely the same. So often we see too many people putting too much in their financial analysis that they themselve lack true understanding of the busienss per se!

      I figured that if you work on your human capital in a career/place where you can develop your business acumen, this aspect of the investment can be easily realised in shorter time during our investment journey.

      At least, I think I developed this edge from my work experience and it helps a lot in my investment experience.


    3. Hi Rolf,

      Agree with you. I always believe that those in the private sector are most aware of the factors affecting the prospects of a company and the industry it is in. This is something that I hope to work on to enhance my investing skills.