I started investing at right around September 2021. This happened to be right around two months before the peak of the stock market - and crypto for that matter. So it might have probably been the worst time to enter the stock market. But that’s just hindsight bias. To give a quick recap of my journey, I started with a platform called Ndovu, which allowed me to invest in a number of ETF funds in the US and China markets at the time. My assumption is that they would take the money paid to them, and invest it on my behalf. I then found and opened an account with Interactive Brokers in February - the only reputable broker that allowed for accounts internationally without needing social security numbers and other details specific to European countries. That is the platform I use to this day.
The Way Down
If you look at the graphs of the S&P 500 from January, you can basically deduce what a rollercoaster ride it has been for me in the last eight months. At one point, it was as much as 20% down since January. As for me personally, my portfolio went down to a low point of 19 %. There are two things to deduce from this number. One is that my portfolio is very closely matched with the S&P. The second is that it could have been worse. A lot worse. NASDAQ kinda worse - the NASDAQ went down something like 30%. One of the things I realized two or three months into investing is that my portfolio was highly concentrated on tech stocks. Some changes needed to be made.
Diversify
My initial investment thesis was to buy companies whose products were systematically engrained in our daily lives. From the phones we carry around, the stuff we watch everyday when we get home, the apps we use to communicate and move. But the problem with that is that a lot of these companies are technology companies, as the one thing surrounding us in today’s world is technology. And the thing with tech companies is that their prices are as volatile as those of crypto. So I did - and still continue to do - one of the few smart things I’ve done in the past eight months. I stopped buying tech stocks, and started buying more established industrial companies. Companies that were almost the complete opposite of tech stocks. Stable, dividend paying, and well capitalized. Little did I know that there was going to be some recession worries that would greatly affect the markets. This is what I call a smart mistake.
Go Slow
When I started this journey, I was dumping a large amount of money, in a fairly irregular manner into the stock market. Almost 40% of the money in the market was deposited during the first two months of the year. There was no discipline. When stocks started going up, I’d fee the urge to dump more in and ride the wave to the moon. But as mentioned above, the first half of the year hasn’t been very kind to investors. This means that a large portion of that initial investment is till in the red, as stocks are nowhere near to the highs back then. This also meant that I incurred large transactional charges due to the number of transactions that I was conducting. It also meant that I was becoming illiquid. Fast. In the investing game, liquidity is everything. You want to always have money to put into the market, whether prices are going down or going up. The moment you stop, you have limited the amounts of gains you can get (more on this in a separate article). So I limited the amount of inflows into the market to an amount I was comfortable with, once a month. That meant I was liquid enough to invest into the markets for the rest of the year. And that means everything, especially with the talks of a recession, layoffs and inflation. As for next year, that will sort itself out in due time.
Buy It Cheap
One thing you’ll realize is that lot of the companies being talked about in investing spaces, while exciting, have some pretty crazy multiples (Price to Earnings, Price to Book). People talking about them generates excitement, which drive up demand. This will eventually reflect in the price appreciation of the stock, completely disconnected from its fundamentals. I got caught up in the enthusiasm that led me to buy some companies whose number make me a bit worried. I’m talking multiples more than 60 at the time I was buying them. Companies with price to book values of over 10. These companies, to put it plainly, are expensive and overvalued. As an example, a price to earnings ratio of 60 means it will take 60 years for the company to earn back, per share, what you paid for it. That’s absurd - unless its earnings growth is like 50% per year. A lot of these are, you guessed it, tech stocks. And given the massive downward movements we’ve seen in tech stocks, that pain is doubled.
But I came across a book by Benjamin Graham called The Intelligent Investor. And in it he talks about value investing - buying companies that are sound, but old or boring, and that for one reason or another, are trading below their fair value. This is the criteria that I have been using for the last three or so months. I can’t be sure of the results, as three months is a blip in the investing world. But the exercise of looking into companies to assess their value has been an eye-opening experience for me. It has helped me develop the discipline of always doing my due diligence before making any decision. And it has led me to find some rather fascinating companies. The best thing is that these companies are either cash rich or asset rich to the point that if they were liquidated, I’d get most of my money back. Also, a lot of these companies are so systematic to their industries that I’m not really worried about suddenly waking up one day to find 60% of their value gone, And that’s the point, isn’t it? Peace of mind?
Now
The recent rally from the June lows has helped to drive me to breakeven, and turn a profit for the first time in four months. Half of my portfolio is green, and that give me some assurance that I’m doing something right. I also have enough to invest into the market for the rest of the year. I’m doing deep dives into each company I’m invested in to ensure that I’m aware of everything, and won’t be caught flatfooted. I also add a new company every month or so, depending on how I like it. My aim is to have anywhere between 20 and 30 high conviction stocks in my portfolio. Create my own Dow Jones. There’s still a large possibility that things might get worse from here. A lot worse. We’re in a recession. Interest rates are still going up. And inflation is going bonkers. Add to this the Russian-Ukraine conflict, and the times are still pretty bleak. But wealth is made in bear markets, not bull markets. Hopefully I’m right. Only time will tell.