This is my 10th year in investing and the outcome is very different from what I envisaged when I first started out as a beginner investor. Armed with some knowledge from investment books, I was full of confidence and firmly believed that I held an edge over other retail investors. You know Warren Buffett once said that majority of active fund managers will not beat the index over a long-term period? I never bought into that as such was the confidence in my own ability. Turns out that Warren Buffett was right (duh!) because the long-term returns of my portfolio trail even that of STI. Of course, this was not helped by the rookie investment mistakes I made when I was a beginner investor.
1) Acting on hot tips
When friends and colleagues hear that you are building up a portfolio of stocks, they will be very eager to exchange “hot tips” with you. Most of the time, I would do my own due diligence by running these equities through Adam Khoo’s value momentum checklist. If they pass the checklist, I will buy. If not, I will be disciplined enough to not take further action. This is an ideal scenario as it is ultimately me who take ownership of my own investment decisions.
Unfortunately, slip-ups do occur now and then. Sometimes, even if some of these stocks did not pass the checklist, I would still proceed to BUY for the Fear Of Missing Out (‘FOMO’). On other occasions, when work was too overwhelming or when boredom set in from prolonged periods of inactivity, I bought these “hot tips” on impulse.
Here is one example- Around Year 2015 when I used to work in the real estate industry, an ex-colleague of mine informed me that there were solid rumours that Wing Tai was going to privatise. Since this was a stock pertaining to a real estate developer which we should know remotely well, I skipped the due diligence and took a leap of faith. Turned out that Wing Tai never got privatised and its share price took a nosedive alongside a muted property market. As of today, Wing Tai is still listed on SGX!
2) Cashing out on winners way too early
In behavioural finance, the disposition effect is such that we tend to sell our winners and hold on to our losers. Crisis is subjective as well, and for a novice investor, it could look anything like a 10% decline in portfolio value. I am not immune to this human psyche. With the benefit of hindsight, I am shocked at the number of winners that I have sold way too early.
Innovalues, Sunningdale and Boustead Projects were all undervalued stocks that I wrote reports that were published on this blog. Yet, the inexperienced me got way too excited when their share prices increased 30-40% over my initial purchase price. This made them prime candidates to be sold whenever I needed to raise cash to feel psychologically safe during a downturn. As a result, I went on to miss out each of their privatisation! This is not to mention other stocks such as Micro-Mechanics which I sold for a near double bagger but it went on to become a triple bagger.
Fun fact- did you know that Micro-Mechanics hold the honour of being the first article that I ever published on Heartland Boy?
Even at the time of writing this article, I am still fuming at the amount of monies that I left on the table notwithstanding that some of these events transpired more than than 7 years ago.
3) Forgetting to cut loss
Even though I have picked a strategy right from the get go, which is Adam Khoo’s value momentum, I failed to adhere to it religiously when it comes to cutting losses. As aforementioned in point 2, it is very hard to cut loss since it is an admission that you have made a mistake. My portfolio returns really suffered in the last few years as I placed big bets on the technology sector. It was a double whammy because I placed my faith in Asia instead of the USA which has recovered some of their catastrophic losses with a best first half in over four decades.
I bought Lion-OCBC Hang Seng Tech ETF at $1.38 and $0.97 respectively and am still holding on to this losing position today. Similarly, my first entry point into SEA Limited was $245 (as shown in Diagram 1) while its current value is a meagre $58.
I could have avoided this bloodbath if I had been disciplined enough to cut my losses when it declined more than 15-20%.
4) Making way too many trades
As an individual running my own investment portfolio on the side, I should have been more focused in keeping a tight ship. Instead, “itchy fingers” led me to gradually accumulate up to more than 15 equity counters at any one time under the disguise of diversification.
As a result, I got distracted and did not understand the individual stocks deep enough to gain any sort of competitive advantage over others. By getting a toehold in so many positions, I accumulated a significant amount of commission fees. Mind you, this was before the era of low-cost brokerages such as Webull and Tiger Brokers when each trade cost at least $25 one way. All these inevitably contributed to poorer returns.
I reckoned that even if I had halved that portfolio all this while, it would still have achieved the necessary diversification.
With the opportunity to review my investment performance over the past decade, I have decided that I hold NO superior advantage over other retail investors. That is why I have slowly begun to transition my portfolio to ETFs. I have come to the point whereby I am happy to take market returns and not market-beating returns. The time that I have freed up can be better channelled to time with my family and other recreational habits.
This article is published on 9 July 2023
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