There’s no shame in losing money on a stock. Everybody does it. What is shameful is to hold on to a stock, or worse, to buy more of it when the fundamentals are deteriorating. -Peter Lynch-
This is a story of a Trader that turned into Investor (or that is what we prefer to be called, however you will find plenty of reasons below why we are still speculators).
This is a story of a broke student reaching 1/2 million dollars invested capital in 10 years. Yes, you read it right. Its from $200 to $500,000 and more.
First off, don’t get it wrong. This is not all because of capital gains, but a combination of saving and gaining. Do come back to checkout our plan here.
If you are here for that magic formula that makes you a millionaire. Let me put it direct, there isn’t one. We tried to find that magic formula for 5 long years, and came back with bagful of life lessons.
10 long years of roller-coaster ride in stock market has taught us a lot of financial lessons, mostly painful though. Some of the lessons, however, are engraved in our life as life lessons and we are glad that we experienced those, which helped us be better person.
10 Year Performance Summary
In the last 10 years, the market is compounding at 13.5% where as our capital is compounding at 10.3%, which came with sleeplessness and stress.
We are clearly under-performing the market.
You can observe that one year of heavy loss, i.e. in 2011, derailed our performance for 4 long years. It took us 5 years just to break-even. That is long 5 years of lost periods to compound.
This is another painful, perhaps laughable to others, example of why active managing does not work in stock market. Check it out here what helped us coming out of this pitfall on 6th year.
The only silver-lining to the 2011 wipe-out is we only lost $3,000 in terms of amount. Had we invested millions, we would be begging on the streets now!
Top 10 Holdings By % of Asset
Overtime, we have learned to concentrate and for good reasons. Top 10 companies hold 90% of our assets, and top 2 companies hold more than 55%. We have full time job other than managing our portfolio; Also, by any means, we can not look after more than 10 companies.
Unless and until it is your full time job, you can not look after more than few companies. We believe we are still holding more than we should.
Additionally, we sort of understand the nature of the businesses we hold and we tend to lean more towards similar businesses. Amazon and Alibaba, being operating in two separate continents, share some common traits and we feel comfortable holding them.
You might enjoy some of the articles related to Amazon and Alibaba.
- Alibaba, A Gem? Part-1
- Alibaba Paid $5.6 Billion In Share-Based Compensation In 2018.
- Alibaba’s revenue increased by 42%
- Just 4 Principles Yield Net Sales of $63.4 Billion!
- Amazon Is A ‘Once In A Lifetime’ Type Of Company
- Why Did Warren Buffett Buy Apple And Not Amazon?
Top 10 Best Performers
Few best investing will set you for life. “10-baggers” as Peter Lynch calls them. We are aspired to just make few good investment, especially our top holdings, in our life time.
Top 10 Worst Losers
More than few times, we have lost our hard earned money. It is painful when we lose money; unfortunately, this trend will continue in the future. Our only goal is to minimize the loss. Perhaps our realized gain is bigger than our realized loss, but that cannot be a consolation for making painful mistakes.
We sometime joke around that we got MBA for around 20K (our accumulated losses only) and it took us 5 freaking years to do so.
Our recent decision to move out of Boeing (BA) and Delta Airliners (DAL) was because we found better investment than those; Unless, we would have no desire to come out of it in just few weeks. Also, we have to acknowledge that our decision process is highly influenced by investor Warren Buffet and his negative sentiment towards airlines has played a major role here. Another half MBA in few weeks!
In our early investing days, when we were proud traders, at the same time, we were expert losers. Checkout our performance in our early days for proof. Losing around 50% of the investment was a norm back then. When we shifted from Penny Stocks to Blue Chips, that trend slowed down. Therefore, we never went back and do not desire do go back.
Top 10 Realized Gains by $
Our biggest mistakes are not where we lost money, but the ones we invested and exited too early. It’s the loss of an opportunity. We made good money on Apple and Amazon Inc, but we were not in the right mind-set to hold on to them. Perhaps we did not deserved it!
We have made some positional mistakes. Do read it here (In This Position, I Gave Up On Netflix!) about Netflix.
At one point, we had 100% of our portfolio in Apple. Shortly after that, we shifted 100% to Amazon in 2014-2015. And soon, we were out of Amazon to something else. Certainly, our goal was to make money, but back of our mind, unconsciously, we were in the jumping game. Or at least it looked that way.
The driving force of all these senseless trading was the psychological force that originated from our ancestral days in Africa. We are build with all these emotions like pain, pleasure, fear, and greed, which helped us conquer and rule the world, but put us at disadvantage in the Wall Street. Full list of those forces are here (Behavioral Biases and Heuristics in Investing). Originally introduced by Charlie Munger. Checkout YouTube video here (The Psychology of Human Misjudgement).
10 Lessons From 10 Years Of Stocks Trading
- Don’t Trade Often
- Don’t Trade Penny Stocks or Options
- Invest for a Long-Term
- Avoiding permanent Loss in more important than making gains
- It’s hard to beat the Market
- Emotional Buying and Selling is the worst enemy of an Investor
- Compounding is the best friend of an Investor
- Ignore Market Forecast and Day-to-Day movements
- Make Big Bets when Opportunity comes
- Wait for the right opportunity
My good lady wife, Ashika Khadka, has put together the top 50 Inspirational Investing Quotes Of All Time. You may enjoy it too. They do help us navigate some stormy weather.
Stock trading has humbled us, especially me, to say the least. The tasks that look and feel simple ain’t that simple. We all think we are smart, but ultimately the broad market prevails. No doubt half of the drivers think they are better driver than other. Math disagrees. Same thing happens in investing.
We are yet to meet an investor, who think that he/she is unqualified to beat the market. The more inexperienced the investor, the more confident he/she seem.
By periodically investing in an index fund, the know-nothing investors can actually outperform most investment professionals. – Warren Buffett.
Voracious reading and unyielding patience are two very important quality that will help you in the stock market. Do checkout our favorite books.
Life is more than just making money or staring at the stock ticker all day long. Having a rich portfolio has very little to do with having a rich life.
Thus far, the best part of our investing career is that all of the big percentage losses, along with plentiful of lessons, came very early when we had very little money invested. Even-though, we are under-performing the broad market, we are beating the market when we have bigger amount of our capital invested. Check out our performance in the second phase.
Lately, we go through company financials and try to make decisions. This is a great shift from looking at the stock performance chart and deciding which way the stock price will jump next. We are happy about it.
The most important of all is the process – the process of buying and selling stocks. We are yet to refine our selection process, but however bad it is, the right process has finally begun. You may enjoy our recent effort in the middle of the pandemic – Google Is Not A Conventional Company!
We knew we are enlighten because we follow just three basic rules of investing.
- Benjamin Graham’s Investing vs Speculating
- Charlie Munger’s Checklist Investing
- Warren Buffett’s Punch-card Investing
1. Benjamin Graham’s Investing vs Speculating
We try to make every transaction more like a business transaction rather than betting on the Vegas Street.
|Safety of Principles||Quick Profit Motive|
|Fundamental Analysis||Technical Analysis|
|Focus on Value||Focus on Price|
|Long-Term||Day Trading, Options Trading|
2. Charlie Munger’s Checklist Investing
Having a checklist is a best way to avoid mistakes in difficult situations. Here is what we follow – An Investing Principles Checklist from Poor Charlie, as the guiding principles.
3. Warren Buffett’s Punch-card Investing
We love the concept of routing all the energy into few tasks. This will yield better than average result, especially in investing. Thanks to Warren Buffett for this worldly wisdom among so many other.
We have the limit of 20 investments to make in our life time. We can not go more than 20 and we have already punched one.
Alphabet Inc. (Google) was lucky enough to get #1 punch. We are left with 19 more. 40 more years to invest, which comes down to 1 company in 2 years. Call us lazy, but that is all we are after. And in some years, we expect and OK with none.
If we find any, our audience will be the first to know.
Hope you have learned a thing or two from our experience. We try to put it as candid as possible. Happy Investing!