(13-06-2020, 08:31 PM)CaiGengYang Wrote: So are there any retail investors on this forum who has consistently beaten the market and earned good returns over long periods of time ? Can share your techniques and secrets ? Haha
I'm a retail investor and actually I have been lurking in this forum for many many years now and I have benefited tremendously from the many knowledgeable posts shared by many wise investors here such as d.o.g. and Musicwhiz and many more ..
I purchased my 1st stock on SGX in 2009 and i have been investing ever since and have been keeping records of every single transactions that I have made. Recently, I was thinking that since I have been investing for more than a decade now and if I cannot beat the index, I am better off with putting my funds in a index or in the hands of a fund manager since it takes a some effort and sweat to pick stocks and not to mention, the emotional roller coasters of seeing your portfolio fluctuates every now and then, especially during times of great volatility.
Using the unit value method as shared in this forum a couple of years ago, I computed the CAGR of my portfolio vs STI since I only invest locally for the most part of my investment journey
Since portfolio inception in 2009: 14.85% vs 4.49% for STI
Past 5 years YTD: 4.69% vs -3.78%
Past 3 years YTD: 5.56% vs -2.17%
So it was with a relief to find out that I have been beating the index consistently although in recent years, my returns has been slowing.
I believe there are no secrets to beating the index and I truly believe that all the secrets can be found in this forum in the posts which has been shared by many.
However, over the years, i have honed my investing edge through many painful lessons and it can broadly split into the 2 categories of knowledge and emotions.
For the aspect of knowledge, the very minimum requirements is that you need to be able to know how to read financial statements and understand the concept of valuation for stocks and this will set you apart from the majority of retail investors. If I was fortunate that I took up financial accounting as an elective since it was compulsory for the program which I was in though I was not a financial major and it turned out to be very useful when I look backwards in my life. For the concept of valuation, the first book I read was on The Intelligent Investor by Benjamin Graham and subsequently, I went on to read books on Buffet, Fisher etc.
Once you achieve the above, you will be able to avoid most of the lemons since reading financial statements will help you avoid companies which are dangerously over leveraged, poor cash flow etc. save for financial frauds which I don't think is avoidable thus it is important to diversify your portfolio and not be overweighted in any particular company, sector etc. and you will be able to derive a valuation for a stock such as P/E ratio, P/B, P/E, EV/ EBITDA or using DCF to gauge whether a good quality company is cheap and what is a good entry price to buy the stock of a company.
For the aspect of emotions, you must be able to withstand the emotions that comes with investing your money. When I first started, I did some trading and it was truly nerve wracking to hold your positions overnight, only to see it gap down the next day when the market opened and I did not have a peaceful night sleep when the market was volatile. I lost a few thousands when I first started trading and it was quite a sum of money since I was a student back then and I just started working but it was a good lesson in which I decided that trading is not my cup of tea through the technical analysis is still pretty useful to gauge potential entry and exit point for the companies in your watchlist which you have deemed to be good companies based on fundamental analysis.
Chucking aside trading, I turn my attention to investing. In the initial stage, it was emotionally difficult to buy when the market is down since we are kind of 'wired' in our brains to see red as danger and should sell instead. However, I kind of force myself to buy only when the market is down and slowly, I have kind of 'wired' myself to only buy when market is down and upon seeing numerous times and realizing that the market will always recover back to higher levels after some time and the only regrets was I did not take courage and buy enough when the market is diving. Most of the times, I'm able to do this and in fact I bought heavily over the past few months but it still takes courage as I remembered on the day Dow dropped 2000 points in March this year, I was very fearful to buy on that day and emotion is really powerful in affecting your logical decisions. Once you can manage your emotions, you will do better than the average retail investors since many would sell when the market is down.
I consider myself very fortunate in able to beat the index. In my portfolio, I have winners and losers but as long as the winners outpace the losers, I guess it will be fine. My worst loser is at -65% currently while my best winner is up by 400%
That being said, i am investing in other markets now such as HK and US markets where I see more higher quality companies with good growth at reasonable valuations. The companies on SGX really pale in comparison. In the past, SGX has good quality companies such as like Asia Pacific Breweries, Cerebos Pacific, ARA asset management etc. which has been delisted. These days, SGX is mainly dominated by financials, properties and REITS.
From a holistic point of view, I think it is equally important to focus on your career or business since the returns from these is much higher as compared to investing since the latter needs a certain amount of meaningful capital to have meaningful returns. Assuming that I have 100k at 30 years old, even if I compound it at 15%, it will only be 404k at the end of 10 years. If you can grow your salary for your career or business by 15%, it makes a lot of difference in building up your capital that is needed for investing.
PS. Aside to moderators, can you please consider to remove the property related posts in this forum? I think it is unrelated to this forum.