The cost benefit of self-directed value investment

[greypiggi]

To me even 10% is fantastic if you can do if for 10 years in a row. Using lower risk mind you, not some crazy trades and hoping you are the 1 in 20 that hits home runs.

[Temperament]

To me even 10% is fantastic if you can do if for 10 years in a row. Using lower risk mind you, not some crazy trades and hoping you are the 1 in 20 that hits home runs.

Actually hoh, it,s never going to be 10 % for 10 years in a row. Some years you do more than 10%, some years you do less. But at the end of 10 years, if your CAGR show 10%, i think it's marvellous too.

So after 26 years if it shows 8 % to 10 %, i am quite blessed already.
But only your final CAGR in the stock markets counts(when you are at the age of becoming senile or dementia, touch wood). That is when you really can't invest anymore, that will be when your final CAGR that really counts. Not when you are still investing. When you are still investing, anything can still happen. The problem is i am still not rich enough to stop investing in the market.
imho.
Shalom.
Amen.

[liphuang]

There are a few different thinking
1) First of all, I don't intend to beat the market. The market return has very little meaning for me. In fact, my return is great when market is bad like 2009; but not so good when market is good like last year. It is more important to track your personal financial objectives in long run then "beat the market". Only fund manager cares about beating the market. I am not interesting at all. The concern of beating the market is not a business owner mindset.

2) 20% is not something out of reach in value investing. We may not comparable with those great names, but we have our advantage. We have a much small amount of money to take care. Achieve 20% return for 1m, you just need to catch 1 great company over a 5 - 10 year period. But if you are managing 200b, it is much more difficult to achieve 20% return.

3) You forget about the improvement in efficiency. On one hand, our asset get bigger, the money making efficiency is improving. On the other hand, efficiency improves with our learning curve. Years ago, i need to spend days to figure out the numbers in a AR to screen a company, and mistakes were made; but today, I just need to spend some hours at the quarter end to review the result, and i know what i am looking for in the AR. If I am satisfy with my current result, 100 man-hours are more than enough for me now.

[yeokiwi]

There are a few different thinking
1) First of all, I don't intend to beat the market. The market return has very little meaning for me. In fact, my return is great when market is bad like 2009; but not so good when market is good like last year. It is more important to track your personal financial objectives in long run then "beat the market". Only fund manager cares about beating the market. I am not interesting at all. The concern of beating the market is not a business owner mindset.

2) 20% is not something out of reach in value investing. We may not comparable with those great names, but we have our advantage. We have a much small amount of money to take care. Achieve 20% return for 1m, you just need to catch 1 great company over a 5 - 10 year period. But if you are managing 200b, it is much more difficult to achieve 20% return.

3) You forget about the improvement in efficiency. On one hand, our asset get bigger, the money making efficiency is improving. On the other hand, efficiency improves with our learning curve. Years ago, i need to spend days to figure out the numbers in a AR to screen a company, and mistakes were made; but today, I just need to spend some hours at the quarter end to review the result, and i know what i am looking for in the AR. If I am satisfy with my current result, 100 man-hours are more than enough for me now.

But, technically, it is quite funny that year in, year out, an investor is always unable to beat the market and yet insist to DIY. I think there are quite a big group out there that falls into this category. (chase hot stocks, hot tips...)

Beating market on a long term basis is liked getting above average score for PSLE. If the reward for putting in extra effort is low, then it may make more sense to do some other things than continuing to do DIY investing. Just like failing the PSLE, if the kids suck in studies, let's try to do something else, like becoming a chef? fitness coach? businessmen? hairdressers?

But, I do agree that higher return can be achieved for a smaller investment fund. So, beating the market is quite possible and not exactly very difficult for retail investors.

[HitandRun]

But, technically, it is quite funny that year in, year out, an investor is always unable to beat the market and yet insist to DIY. I think there are quite a big group out there that falls into this category. (chase hot stocks, hot tips...)

Beating market on a long term basis is liked getting above average score for PSLE. If the reward for putting in extra effort is low, then it may make more sense to do some other things than continuing to do DIY investing. Just like failing the PSLE, if the kids suck in studies, let's try to do something else, like becoming a chef? fitness coach? businessmen? hairdressers?

In principle, I agree with liphuang but I reckon 100 hrs a year is probably too low if one includes checking stock prices and surfing valuebuddies.

How does one know that he can beat the market? How do you know if you never try? Does one measure at the 1-year, 5-year, 10-year, 20-years, total lifespan mark? E.g. if I look at my initial 5-year record, my capital was wiped out by 50% twice (including the AFC). But if I look at my 20+ years record, not bad lah.

But, I do agree that higher return can be achieved for a smaller investment fund. So, beating the market is quite possible and not exactly very difficult for retail investors.

Is this statement made with benefit of hindsight now (i.e. potentially tail end of a bull market where the statistics flatter)? Would you have made a similar point at the peak of each crisis (trough of the market)?

[yeokiwi]

Is this statement made with benefit of hindsight now (i.e. potentially tail end of a bull market where the statistics flatter)? Would you have made a similar point at the peak of each crisis (trough of the market)?

Hmm.. all comments are hindsight and based on personal experiences. Obviously, experiences differ. But, I had seen enough ppl that tide through SAR and GFC with reasonable returns. But, being rather junior in investing, I had not seen long enough until 1987 crash or AFC to give a longer term perspective.

The difficult part is always the learning and that by itself, will deter the majority.

[Temperament]

Is this statement made with benefit of hindsight now (i.e. potentially tail end of a bull market where the statistics flatter)? Would you have made a similar point at the peak of each crisis (trough of the market)?

Hmm.. all comments are hindsight and based on personal experiences. Obviously, experiences differ. But, I had seen enough ppl that tide through SAR and GFC with reasonable returns. But, being rather junior in investing, I had not seen long enough until 1987 crash or AFC to give a longer term perspective.

The difficult part is always the learning and that by itself, will deter the majority.

i think the most difficult part of investing in the market still is what WB said something like this (i dislike to google):- "If you panic when your portfolio is down 50%, you have no place in the market". Or "You shouldn't be in the market".
Because if you are always in the market, you will definitely be caught with 50% down or even more.
In other words, always be prepared you can survive in any type of market.
Don't be caught with your pant or skirt down.
When i first invest, i was caught almost with my pant down but i survive till today.
Shalom.

[Temperament]

HitandRun Wrote: Is this statement made with benefit of hindsight now (i.e. potentially tail end of a bull market where the statistics flatter)? Would you have made a similar point at the peak of each crisis (trough of the market)?Cool
Unquote:-
Yes, very good question.
It is always your UTD portfolio's CAGR that counts-no matter where the Market is. No matter how many years you have been in the market.
In another words, if your UTD CAGR always show 8% to 10%, i think you are doing quite well already. i think very few of us can achieve this. If you have achieved that, it means you can really sleep well at night throughout the years. So not only you have a little wealth, you manage to have health too.
NB:-
i think WB didn't too. Because in 1999 S&P 500 gained > 19%, WB's portfolio lost more than that 19%). How's that. (IIRC).
Imagine the Great sage lost > than 19% at the time S&P 500 gained > 19%.
It's good to find out why. But it's not easy to google. i read it from a book from NLB. Sorry, i have forgotten the title of the book.

[CityFarmer]

There are a few different thinking
1) First of all, I don't intend to beat the market. The market return has very little meaning for me. In fact, my return is great when market is bad like 2009; but not so good when market is good like last year. It is more important to track your personal financial objectives in long run then "beat the market". Only fund manager cares about beating the market. I am not interesting at all. The concern of beating the market is not a business owner mindset.

2) 20% is not something out of reach in value investing. We may not comparable with those great names, but we have our advantage. We have a much small amount of money to take care. Achieve 20% return for 1m, you just need to catch 1 great company over a 5 - 10 year period. But if you are managing 200b, it is much more difficult to achieve 20% return.

3) You forget about the improvement in efficiency. On one hand, our asset get bigger, the money making efficiency is improving. On the other hand, efficiency improves with our learning curve. Years ago, i need to spend days to figure out the numbers in a AR to screen a company, and mistakes were made; but today, I just need to spend some hours at the quarter end to review the result, and i know what i am looking for in the AR. If I am satisfy with my current result, 100 man-hours are more than enough for me now.

I agree with the view that achieving 20% isn't an impossible task. It is not that we, amateurs, are smarter than those professional fund managers. It is the lesser constraints. Peter Lynch's book titled "One Up On Wall Street" stated, "I continue to think like an amateur as frequently as possible" (that resulted his outstanding performance)

I don't quite agree on benchmarking. Benchmarking is important to know where you are. In your case, chances are the benchmark selected seems incorrect.

[corydorus]

Yes benchmark to know where we are is important. I just like to add on Index fund like STI Index return performance can be misleading when is at high.

Using past 26 years of data, at recent STI index value, excluding dividends, we expects 3.6% compounded returns.
Simulated with annual cash injection on a compounded growth rate from salary.

I then do a theoretical exercise by simulating additional 10 years with STI coming down to 2200. Again cash injection annually.
The returns is -0.7% range compounded. Value varies with the rate of STI index decrease.

Some people will say well we can use the average of the two to project. This is on hindsight data which is quite dangerous to project onto the future. Even then if we include dividends is roughly 4%.

If i am to do a simulation of extending to 15 years with STI 2000 instead, the data will be very different.