Month: May 2016

A Slight Shift in Investment Strategy

By Nick Hobgood (Own work) [CC BY-SA 3.0 (], via Wikimedia Commons

I’m still very blue-chip stock oriented and I’m still hedging based on some form of indicator on market sentiment.

The only difference is that I’m much more diversified (44 stocks as of May 10th 2016), I only exclusively hold world class companies’ stocks (Wide Moat + Exemplary Stewardship Rating by Morningstar) and I hedge not only on market sentiment but also on market valuation as well (Fear & Greed Indicator and Shiller P/E).

The reason behind this shift in investment strategy were as follows:

  • Even though I was generating 30+% annualized returns between the period of March to May 2016 for my stocks (I was ~2/3 hedged in cash, so ~10+% actual returns), the volatility that came in investing heavily in the most undervalued stocks still made feel very uneasy
  • Another thing that made me uneasy was that even though majority of very undervalued stocks I invested were blue-chip stocks (wide moat or narrow moat by Morningstar definition), I still had a sizeable portion of no moat stocks as well which made me uncomfortable as they could easily die during an economic recession
  • The shift to a diversified portfolio of world class companies was simply because of two statements that Charlie Munger and Joel Greenblatt made (I unfortunately can’t find the sources for both statements, but I definitely remember reading them):
  • I’ve also taken market valuation into consideration when considering how much cash to hedge because even though the overreaction of market sentiment is good (over-fearful = great buying opportunity and vice versa), I could have easily mistook an over-fearful reaction to the beginning of a bear market as a great time to go all in, when it would’ve been more prudent to wait longer while the bear market kept raging on
  • Every time I wrote an equity research report and compared it with Morningstar’s equity research report, I’ve always been impressed at how much better their research is versus an amateur like me. So to not let my ego get in the way, I now use Morningstar’s research extensively so that I can focus on portfolio management
  • Since I am heavily relying on research not from me, it provides a further reason to be widely diversified since I can’t guarantee that Morningstar is right on each stock, but I know on aggregate that Morningstar would be right based on my due diligence on each equity research report.

Until I somehow have a lot of time to research companies in-depth myself and beat Morningstar in their game of research, this will be the investment strategy that I will deploy.


Not advice. No offer. Do not rely. May lose value. Risky. Conflicts hidden/obscured. (Borrowed from Terrence Yang‘s Disclaimer on Quora)


Eating My Own Cooking for Financial Advice

By Madhu15121992 (Own work) [CC BY-SA 4.0 (], via Wikimedia Commons

Any friend I have a conversation with which ends up on the topic of investment or retirement savings would always end up with advice for investing which would be that “if you don’t have the interest, time, energy or competence to invest, stick with index funds”.

The rationale is simple, 90% of fund managers fail to beat the market.

But here comes the problem with my advice. Even though the advice is sound (read The Little Book of Common Sense Investing for a detailed explanation of why, I don’t get paid for referring you to John Bogle’s book), a lot of people always ask me, “well but what about you? Do you invest in index funds?”

And I think that’s the problem. I don’t invest in index funds, because I think I’m the statistically improbable few who can beat the market, and that sets a bad example to my friends of do as I say and not as I do.

Sure I have friends who say “well you did say if you don’t have the interest, time, energy or competence to invest you should stick with index funds, but you obviously have the interest, time, and energy”, but I’m pretty sure quite a few are actually convinced by my actions that they might be the statistically improbable few who can beat the market as well.

And generally speaking, for the majority of friends who hear my advice but go their own merry way to trade stocks with disregard to fundamentals or valuation, many have been burned badly. Still they remain deterred and continue stubbornly without index funds.

So when a friend actually told me that he took heed to my advice and was socking away a regular amount of money into the Hang Seng Index every month, a sense of responsibility and an epiphany dawned upon me.

For my friend who believed in me, my sense of responsibility compelled me to match the amount of money he’s invested so far in the Hang Seng Index and his monthly contributions to the Hang Seng Index as well. I wanted to eat my own cooking since if my advice of investing in index funds was shit, I’d suffer too.

The good thing about aligning interests was that it would also force me to closely monitor the fundamentals and valuations of the constituents of the Hang Seng Index since I absolutely hate overpaying for things and losing money. This way I could also give advice to my friend when to pause monthly contributions if overvalued, or even when to sell if the Hang Seng Index is ridiculously overvalued.

The epiphany part was basically that if I wanted my advice to be taken seriously, I needed to walk the talk. Sure the Hang Seng Index would never give me great returns, but it would still guarantee a good return at the right valuation, and that’s the lesson I want my friends to learn regarding index funds, that a good return is still good in a world of sub-market returns of active investing.

So that’s it, I’m officially indexing for a part of my stock portfolio so that I can eat my own cooking and walk the talk. The idea still kind of drives me crazy that that amount of capital would never generate potentially market beating returns (there’s still a decent amount of wide moat companies that I deem under to fairly valued), but if it helps me be responsible for the financial advice I give people and allow people to take my financial advice seriously, then so be it.

After all as mentioned earlier, a good return is still good.


Not advice. No offer. Do not rely. May lose value. Risky. Conflicts hidden/obscured. (Borrowed from Terrence Yang‘s Disclaimer on Quora)