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.

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.

Temperament, totally agree. End of the day is when we call it quits and the figure that counts. But what is the figure. I am 39 this year and i think i have enough to totally stop doing equities and just do treasuries. In my model if inflation is 3% and i gain at 3.5% (just all SGD long dated treasury and USD treasury for some spreading of risk) and dont work, i will end up with 2+M in today's value by the time i am 90 years old. But here is what i think /feel :

1) Am i doing justice to what i have been blessed/ fortunate to get? If i just let it acccumulate at 3% per year until i die, i will eat into the capital very significantly. How am i doing justice to it and to what i am given?

2) Interest. Surely i can derive some fun and utility out of managing portfolio and maybe also achieve (1) better.

3) Kids. If i eat up most of my capital. Am i being a bit too selfish to them?

4) Greed & Achievement. I am first to admit it. While i try hard to be happy and content, i do wonder what else i can do and achieve to impact more if i can triple or x4/x5 ? what i have in 15 years. On spending side, i have managed to stablize well already after 2 big spikes in last 10 years. Once when my business starting making good profits and another time after sale of company.

So i carry on for the above reasons. What do you think? Even if you accumlate what you model you need (assuming still have energy and young in the mind), will you really stop?

[greypiggi]

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.

Disagree with (1). Many Business owner and me included like to win. I have been business owner and entrepreneur last 14 years. So of course if i am putting time and effort into my portfolio it is like my business. Why shouldnt i aim to beat benchmark? I dont under the logic here.

2,3 maybe i am just a bad investor. Over 3 years CAGR only about 7-8% for full portfolio and for equity alone only about 8-9%. Bonds did well. So i need to learn from those who can do 10 or 20% without high risk. As others pointed out, too short a time frame, i need to DIY at least 7-10 more years before i can decide if DIY or outsource makes sense....

[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.

Temperament, totally agree. End of the day is when we call it quits and the figure that counts. But what is the figure. I am 39 this year and i think i have enough to totally stop doing equities and just do treasuries. In my model if inflation is 3% and i gain at 3.5% (just all SGD long dated treasury and USD treasury for some spreading of risk) and dont work, i will end up with 2+M in today's value by the time i am 90 years old. But here is what i think /feel :

1) Am i doing justice to what i have been blessed/ fortunate to get? If i just let it acccumulate at 3% per year until i die, i will eat into the capital very significantly. How am i doing justice to it and to what i am given?

2) Interest. Surely i can derive some fun and utility out of managing portfolio and maybe also achieve (1) better.

3) Kids. If i eat up most of my capital. Am i being a bit too selfish to them?

4) Greed & Achievement. I am first to admit it. While i try hard to be happy and content, i do wonder what else i can do and achieve to impact more if i can triple or x4/x5 ? what i have in 15 years. On spending side, i have managed to stablize well already after 2 big spikes in last 10 years. Once when my business starting making good profits and another time after sale of company.

So i carry on for the above reasons. What do you think? Even if you accumlate what you model you need (assuming still have energy and young in the mind), will you really stop?

No! i won't stop. but the classic textbook reply or to me commonsense is if you have more then enough now, then return of capital ( at least can catch up with inflation hoh) is more important than return on capital.
Another words it makes sense not to take the risk (higher risk) if you don't have to. But we still have to take some risk because of inflation.

Maybe you can get some ideas from this:-
http://www.iflmmovie.com/
Click Watch IFLM Movie, Play Movie.

[liphuang]

Oh, within 1 day, there are so many good discussion here. Many of us spend hundreds of hours here every year. How much is the hourly return to be here?

Some clarification on my first point, I mean the long term objective is more important than beating the market. Especially, when you are comparing your short term result with the so-called average return is actually very harmful in your investment.

Sometime, a great company that we invest takes years to be recognized by the market. You may have a result of 2% for 4 years, and 200% at the 5th year, end with a >20% return. If at the first 4 years, you keep on thinking of beating the market, you may end up loss your 200% by selling too early. Thinking of the market will end up becomes a trader instead of a value investor.

To forget about the market, focus on great business, and the long term objective. The PSLE example is good, I was poor student in primary school, but i managed to get a seat in local U few years later. So don't make decision too early for your children by PSLE.

Further, 20% is really nothing special. You need to select a few good under-value companies, 1 perform badly, a few as your expectation, and 1 becomes great. sell the loser and hold the rest for years until they are really over-value. Forget about the daily price, only review quarterly result, don't listen any news about China property or federal reserve or economic forecast, don't care about any tips given.

You need to spend huge effort at the beginning to learn how to select good under-value companies, after that you only need to wait...... So 100 hours is actually more than enough.

[corydorus]

If you like your work, you tiptoe to office... (remember) ?
If you start counting hours, motivation is an issue even if you double to 200 hours, may not get the needed result.

[Temperament]

It's not a matter of like or dislike only. It's matter of your personal's psyche. Many Gurus believe either you have it or you don't have it. No amount of reading or study can changed your psyche in investing in the market.

[cif5000]

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.

STI was up 64.5% in 2009 but was flat (up only 0.35pt) last year in 2013. So the market (as represented by STI) was not at all bad in 2009. Neither was it good in 2013.

Sometime, a great company that we invest takes years to be recognized by the market. You may have a result of 2% for 4 years, and 200% at the 5th year, end with a >20% return. If at the first 4 years, you keep on thinking of beating the market, you may end up loss your 200% by selling too early.

Agree. Different stocks have different gestation periods.

Individual stock is like each step of a marathon. You take one at a time and not thinking about how many more you will have to take later on. If all steps are taken correctly, you will reach each milestone and at the desired timing. The milestone check can easily be done regularly against the index. Milestone checks should be done on a portfolio basis. It's useful because if you take the wrong steps and go off-course you won't get there. Doesn't matter how fast or long you run.

Back to investing. If you are beating the index every year, I don't see how poorly one's investment result can be. If you are trailing the market, say 3-4 years in a row, would you not look deeper into yourself? Portfolio basis that is.

[Temperament]

STI was up 64.5% in 2009 but was flat (up only 0.35pt) last year in 2013. So the market (as represented by STI) was not at all bad in 2009. Neither was it good in 2013.

Actually it was really good for trader in 2009 and bad in 2013.
My point is there is always someone making money and someone losing money in the market, at any time of the day.
We all make (lose) money in our own way.

[tanjm]

Oh, within 1 day, there are so many good discussion here. Many of us spend hundreds of hours here every year. How much is the hourly return to be here?

Some clarification on my first point, I mean the long term objective is more important than beating the market. Especially, when you are comparing your short term result with the so-called average return is actually very harmful in your investment.

Sometime, a great company that we invest takes years to be recognized by the market. You may have a result of 2% for 4 years, and 200% at the 5th year, end with a >20% return. If at the first 4 years, you keep on thinking of beating the market, you may end up loss your 200% by selling too early. Thinking of the market will end up becomes a trader instead of a value investor.

To forget about the market, focus on great business, and the long term objective. The PSLE example is good, I was poor student in primary school, but i managed to get a seat in local U few years later. So don't make decision too early for your children by PSLE.

Further, 20% is really nothing special. You need to select a few good under-value companies, 1 perform badly, a few as your expectation, and 1 becomes great. sell the loser and hold the rest for years until they are really over-value. Forget about the daily price, only review quarterly result, don't listen any news about China property or federal reserve or economic forecast, don't care about any tips given.

You need to spend huge effort at the beginning to learn how to select good under-value companies, after that you only need to wait...... So 100 hours is actually more than enough.

You are preaching to the choir here, given this is value oriented forum. The comparison to the market is on a long term basis, not a year to year basis.

Let me put it to you this way. Let's say you generate a annual long term return of 7% after passing through 2 business cycles. How do you know if your effort was worthwhile?

[hongonn]

The effort is worthwhile because it show that my current methods cannot beat the market. So i should study my mistakes, improve the methods, and go out and try new method again.

There is a folktale said Edison failed a 1000 times before invent a light bulb. He said the effort is not wasted because he get to know the 1000 ways of not making a light bulb.

Haha am i talking nonsense here :p

Let me put it to you this way. Let's say you generate a annual long term return of 7% after passing through 2 business cycles. How do you know if your effort was worthwhile?