2015 has been a really tough year for investors. Just take a look at the events that happened:
- Jan-June: ECB conducts QE, China’s central bank cuts rates, Shanghai Composite Index soared 60%, US market also rose to an all-time high, oil recovers to $60.
- June-July: Greece defaults and fears of a GREXIT caused a market sell-down.
- August: Unexpected devaluation of the CNY caused the steepest one-day crash aka Black Monday (8.5%, Aug 24) for Chinese stocks and a 40% decline from its peak.
- Nov: Terrorist attacks on Paris and refugee crisis in Europe due to intensifying war in Syria
- Dec: Fed hikes interest rates for the first time in almost a decade; OPEC sends oil prices below $40
Investors that enjoyed the ride up in the first half of the year were slaughtered by the second half as the markets plunged. It’s amazing how bullish sentiments turn into bearish sentiments in such a short time.
Admittedly, I too, had also hoped that the markets would continue rallying. Why wouldn’t I? But, instead of giving me a bull rally, the market gave me a test(series of negative market events), and then a lesson that has helped me become a better investor. And yes, when it comes to investing and in life, the test often comes first before the lesson. So here’s what I’ve (re)learnt:
The Lesson: Focus on a company’s fundamentals, stay the course, and ignore the noise
As long-term investors, we should focus and worry more about the fundamentals of the companies we own rather than what is going on in the global economy. Since, stock price is a function of the company’s earnings power and valuations, that’s where we need to spend our time and effort in forecasting. Don’t bother predicting about where the general economy, interest rates, inflation rates, and etc will be headed to, nobody can do it consistently.
Once we have found a select group of undervalued stock and invested in them, the real challenge begins. In my personal investment journey, I found that successful investing is 20% skill and 80% temperament. Your ability to control your emotions (fear, greed, envy, etc) has more impact to your success as an investor than your ability to pick winning stocks. When vested, we must continue to stay the course and avoid the noise (news, opinions of friends and family, etc). For example, using only logic and hard facts in deciding whether to continue holding onto a stock or letting it go.
Real Life Example
I met up with a 19 year-old friend (lets call him Alex) recently for lunch. As usual, our conversation led to the financial markets and we both shared about how we handled the August market crash.
Alex started trading the US market a few weeks prior to the crash when the markets were still rallying. Even without any prior knowledge in investing, he was making around $100 a day by trading US stocks, on contra and the advice of his friends. $100 a day for a 19-year old is a big deal! Alex thought that it was easy trading/investing and that he was set for life. However, August 24 came and wiped his account clean, leaving him $6,000 in the red. After closing all his position and realising his losses, the counters he had sold spiked right back up. Emotionally depressed, Alex threw in the towel and gave up on investing.
Like Alex, I enjoyed the rally on the first half of the year. My portfolio was already up 27% by June. My annual growth target is 20% so I had already achieved it in half-time. I was ecstatic. Then August came…My portfolio took a massive hit, erasing almost all of the 24% gains that were made in the first half of the year. The 5-digit ‘loss’ made me emotionally depressed to be honest. I kept telling myself how I should have just cashed out in June and re-entered after the crash. But I remembered the old saying: “Time in the market is more important than timing the market“. Also upon further research, I realised that the companies I owned were still robust and were not affected by what was going on globally. So I stayed the course, avoided the noise, and did NOTHING. My counters eventually recovered.
At the close of the last trading day of 2015, my portfolio grew 24.79% for the year. The Straits Times Index was down 11.23% during the same period.
Here’s a CPFIS-OA Portfolio I manage for a partner:
In 2014, the CPF portfolio gained 6.03%. In 2015, it gained 40.54%. Funny thing is, the CPF portfolio was constructed to be more conservative vs my portfolio. For 2015, the CPF Portfolio outperformed my portfolio by almost a factor of 2! Nevertheless, a pleasant surprise is always welcomed!
In 2015, the assets/portfolios I managed grew 67%, from $120,000 to $200,000.
Despite all these market downturns, 2015 was a fruitful year. I can’t wait to find out what 2016 has in store for me!
Last but not least, to our readers, thank you so much for your unwavering support since TLS’ inception in December and we hope that the articles we write continues to add value to your life!
Wishing all of you here a financially prosperous new year!
Keep on snowballing!