4 important lessons I learned from investing in 2018


Do you remember what your portfolio was like back in 2017?
I can remember mine when I looked at my portfolio just a year ago. Most of the stocks I owned had positive gains. The stock market had performed well with most market indices achieving double-digit annual growth:
Index | 31 Dec 2016 | 31 Dec 2017 | Return |
---|---|---|---|
Straits Times Index (Singapore) ๐ธ๐ฌ | 2,880.76 | 3,402.92 | 18.1% |
Bursa Malaysia KLCI (Malaysia) ๐ฒ๐พ | 1,641.73 | 1,796.81 | 9.5% |
Jakarta Composite Index (Indonesia) ๐ฎ๐ฉ | 5,296.71 | 6,355.65 | 20.0% |
SET Index (Thailand) ๐น๐ญ | 1,542.94 | 1,753.71 | 13.7% |
CSI 300 (China) ๐จ๐ณ | 3,310.08 | 4,030.86 | 21.8% |
Hang Seng (Hong Kong) ๐ญ๐ฐ | 22,000.56 | 29,919.15 | 36.0% |
Nikkei 225 (Japan) ๐ฏ๐ต | 19,114.37 | 22,764.94 | 19.1% |
KOSPI (South Korea) ๐ฐ๐ท | 2,026.46 | 2,467.49 | 21.8% |
Nifty 50 (India) ๐ฎ๐ณ | 8,185.80 | 10,530.70 | 28.7% |
ASX 200 (Australia) ๐ฆ๐บ | 5,665.80 | 6,065.13 | 7.1% |
Dow Jones (U.S.) ๐บ๐ธ | 19,762.60 | 24,719.22 | 25.1% |
S&P 500 (U.S.) ๐บ๐ธ | 2,238.83 | 2,673.61 | 19.4% |
Fast forward to today and this is how the indices have performed in 2018 — almost of them have fallen into the red due to US-China trade war tensions and an uncertain economic outlook:
Index | 31 Dec 2017 | 24 Dec 2018 | Return |
---|---|---|---|
Straits Times Index (Singapore) ๐ธ๐ฌ | 3,402.92 | 3,051.06 | -10.3% |
Bursa Malaysia KLCI (Malaysia) ๐ฒ๐พ | 1,796.81 | 1,683.82 | -6.3% |
Jakarta Composite Index (Indonesia) ๐ฎ๐ฉ | 6,355.65 | 6,163.60 | -3.0% |
SET Index (Thailand) ๐น๐ญ | 1,753.71 | 1,591.29 | -9.3% |
CSI 300 (China) ๐จ๐ณ | 4,030.86 | 3,038.20 | -24.6% |
Hang Seng (Hong Kong) ๐ญ๐ฐ | 29,919.15 | 25,651.38 | -14.3% |
Nikkei 225 (Japan) ๐ฏ๐ต | 22,764.94 | 20,166.19 | -11.4% |
KOSPI (South Korea) ๐ฐ๐ท | 2,467.49 | 2,055.01 | -16.7% |
Nifty 50 (India) ๐ฎ๐ณ | 10,530.70 | 10,663.50 | 1.3% |
ASX 200 (Australia) ๐ฆ๐บ | 6,065.13 | 5,493.80 | -9.4% |
Dow Jones (U.S.) ๐บ๐ธ | 24,719.22 | 22,445.37 | -9.2% |
S&P 500 (U.S.) ๐บ๐ธ | 2,673.61 | 2,416.62 | -9.6% |
Likewise, looking at my portfolio now would show many of my stocks in the red. To be honest, it triggers a bit of emotion when I look at my positions. Then again, this is not the first time Iโve experienced this — the same thing happened during the euro debt crisis, the oil price crisis, and the China stock market crash.
Like the saying goes: โTough times donโt last, tough people do.โ Eventually the stock market will recover but no one knows when. So instead of trying to predict when the stock market will turn around, Iโd rather reflect about my investing for the year and learn from my mistakes to become a better investor.
So here are four personal lessons I learned from investing in 2018 — which I hope will serve as new insights or as important reminders for the year to come:
1. Do I really need that new stock?
As an investor, finding a new investible stock is like striking the lottery which, for me, comes with an addictive feeling of euphoria. Sometimes, this โaddictionโ will cloak my judgement and I end up buying every new investible stock I find before realising that Iโve over-invested. When I realise that I have too many stocks, I start trimming my portfolio down to the number of stocks I initially planned to own.
While having too many great stocks to own can be a โgood problemโ to have, I prefer to focus on the 15 best stocks for my portfolio. So in order not to get carried away, I now ask myself this question whenever I find a new idea: โIs this new stock a better investment than one I already have in my portfolio?โ
The question may be simple, but it forces me to think deeply about the stocks I own and the ones I could potentially own. To maintain the number of stocks I wish to focus on in my portfolio, I have to make sure that a new stock is better than an existing one.
2. A recurring business is an investorโs best friend
I often notice that companies that earn non-recurring revenue or are cyclical in nature tend to trigger my doubts during times of crisis. On the other hand, companies with stable, recurring revenues are the ones I feel safe holding onto even during the worst recessions because Iโm confident that the probability for their recovery is high.
My business partner Kenji recently pointed out an interesting insight about Berkshire Hathawayโs investment portfolio which I decided to look into — I realised that 80.7% of Berkshireโs portfolio is concentrated in four sectors: banking, technology, food, and payment processing. Companies in these four sectors generally provide products and services that consumers have to use on a daily basis — which provides recurring income. Only 7.9% of the portfolio is invested in companies with non-recurring revenue. So if the Oracle of Omaha likes investing in recurring businesses, I donโt see why I should argue with him!
3. Time to say goodbye
Before I explain this point, I have to admit that I am guilty of this mistake at times. As much as I know we should โsell your losers and keep your winnersโ, I do have my moments of weakness when I hesitate to click the sell button.
For instance, my investment in the bulk shipping industry has not only cost me money, but also a huge amount of time I spent doing research on understanding the industry. The bulk shipping industry suffers from an oversupply of ships which I thought would subside as the scrap rate for old ships increased. But I learned the hard way that supply can be pumped into the industry anytime with private equity players investing in new ships which dragged out any potential turnaround. Unlike the property industry in Singapore where the government can intervene and reduce supply, no one has such control in the global bulk shipping industry.
To be honest, I was slow in waking up to the fact but itโs a mistake I wonโt forget anytime soon. As the markets started to fall at the end of the year, value for several high-quality stocks started to emerge. I had to remind myself that instead of staying on a sinking ship (pun intended), I needed to cut my losses and redeploy my capital in places where it could earn a higher return. In the end, I sold my losers and Iโm glad I did.
4. Building your ark
I particularly like the story of Noahโs Ark where Noah spends years building an ark preparing for the biblical flood to come. With that story in mind, my team and I have spent the past few years building our watchlist (ark) in preparation for a crisis (flood). As the markets came down this year-end, we jumped onto our watchlist and started deploying our capital in stocks that had become significantly undervalued.
Thereโs a quote that says: โInvesting is nine years of hard work and one year of action.โ What this means is that you should always be busy doing your research to build a watchlist of potential investment ideas, so when the flood hits you are ready to take advantage of any opportunities that arise. If youโre only building your ark while ankle deep in water, you may miss out on a great investment because the window of opportunity may be small and fleeting.
All the best for your investing in 2019!
Retiree, 63. New to stock investment. Keen to read-up & learn along the way.
Congrats on starting the investing journey!
I suggest checking our main resource how to start investing here: https://fifthperson.com/how-to-start-investing-in-singapore-a-practical-guide-for-beginners/
All the best and feel free to drop comments and ask questions along the way ๐