My Investment Journey (so far…)

Before getting too far into posts on current investment ideas, I thought it might be worthwhile to reflect on and share my investment journey to date. Nothing spectacular, it’s really a story of starting small and testing the water with managed funds before moving to direct equities, ETF’s and LIC’s. My interest in investing started whilst completing an undergraduate degree, reading investment books in spare time, between class at first (I had a few 2hr gaps to fill and somehow spending the time at the tavern never crossed my mind!) and later, in the evenings, over weekends and semester breaks. I started with Security Analysis and moved on from there. Not everything I read was a hit, but I quickly saw the value of investing and turned to my father for advice. Perhaps because he didn’t have much investment experience at the time, he gave me every book he ever owned on investing (both of them) and suggested I keep reading and save up something to invest.

When I had saved $1000, my dad put me in touch with his financial advisor (to this day he hasn’t mentioned it, but I suspect he paid for the half hour meeting). At this meeting, I learned about the importance of repaying high-interest debts, regular saving, and investments via managed funds. I also walked away with an application for Colonial First States Global Resources Fund (the advisor didn’t receive a commission, he simply gave me the application form and suggest I post it direct if I decided to go ahead with it). I also got a rebate on trailing commissions and invested my cash. At the time, resource stocks were booming and continued to do so until the GFC. I sold in January 2008 making around 25% (I can’t recall the exact return, but the fund declined somewhat and I withdrew the funds prior to starting full-time work after graduating a BSc. After the GFC resource stocks continued their substantial rise and a second eventual crash. Following a short-lived recovery, the fund has largely languished since). This experience taught me a lot. Not only did I make a decent return, I observed significant volatility, realised fees, and commissions can be a significant headwind and perhaps most valuable of all, decided to continue my own investment education so I could eventually run the show myself. I have nothing against managed funds per se, (I currently use them) but given the choice, would rather do the work and earn the return myself.

During this time, I didn’t invest a cent in equities (aside from contributing more to Superannuation). Online savings accounts returned fantastic risk free yields (7-8% during the GFC) and I was quite content with this. Importantly, I kept learning about investing, reading more books, journals, and blogs than ever and attending seminars and completing online courses. I also tested myself in real-time online sharemarket games (this year I ranked in the top 9% of players).

By 2013 I’d decided to invest directly in equities and opened a low-cost brokerage account with CMC Markets. Armed with annual reports and a spreadsheet for analysing businesses and estimating intrinsic value. My approach was to buy a good business with a high return on equity, little or no debt, with decent management and potential for growth that was trading  below my estimate of intrinsic value.

Screenshot 2015-12-06 21.02.43

After spending too much time doing analysis and research (I have a PhD to do) I decided to invest in Cadence Capital, a Listed Investment Company run by Karl Siegling whose investment philosophy I thought a good one (to buy undervalued and well run companies, only when prices were already on the rise or short overpriced equities, only when prices were declining) – I still think this is an excellent LIC, and it has returned over 18%p.a. since inception over 10 years ago. Bought at less than Net Tangible Assets I would still find it an attractive consideration.

I finished the period up 14.9% and with a first-hand education of the market.

Early in 2015 I bought into Vanguard’s US index ETF and a managed investment fund, Novaport Capital’s  Wholesale Smaller Companies Fund. Vanguards ETF is simply an index fund which tracks the US market, unhedged for currency movements (AUD/USD) which movements would return in my favour with a falling Australian Dollar vs the Greenback. Novaport’s WS Smaller Companies Fund invests in Australian Small Cap equities with a focus on buying fundamentally cheap businesses with good growth prospects.

I made the shift from equities to an ETF/managed fund primarily because equities require significant research I didn’t have the time for (hence the ‘couch potato’ investment in Cadence and Vanguards ETF), and because with a small amount of funds available, regular investments in the stock market would lead to significant brokerage fees or very few investments per year. I later realised I overcommitted funds to investments and withdrew my holding in the ETF to pay down debts. I suppose over-stretching in this way is an easy mistake to make and one I’m glad I learned first hand to watch out for.

Current (2015) holdings
I currently hold  a position in Novaport’s Smaller Companies fund, and contribute $200 per month to the fund (with no entry or exit fee). This allows me to continue adding to my small holding (approx. $3000AUD) whilst furthering my investment knowledge and paying down debt. I understand many investors shun managed funds due to the management fees and the statistics about a majority of funds underperforming the index, but I believe that some well run funds can outperform their index after fees and so are worthwhile. Assuming distributions were reinvested, at March 2016 Novaport WS SCF had outperformed the ASX Small Ordinaries Index after fees by 10.07% p.a. over the past 10 years and 8.25% p.a. since inception. A $100 investment at inception (31st Dec 2002) would be worth $719.23 at March 2016 (distributions reinvested). Not bad at all.

Future plans
Once I start earning a stable income, I intend to start investing domestically in the Australian stock market and abroad. I think I’ll maintain the holding in Novaports fund for diversification, and aim for a roughly 60:40 split between international and domestic equities. Recent stocks I researched on the international market included Volkswagen (which I almost bought at $100 before it moved to $130+ wiping out a large portion of it’s margin of safety while my international trading account took a week too many to open), Apple (which I think is far more than a computer retailer) and Berkshire (which I’d consider at 1.25x book value, as a long term holding). I also like the idea of investing more heavily in international equities when the AUD is well above its long-term average (i.e. 7-10 year average) and concentrating on domestic equities when the AUD is comparatively weak. I’m sure the strategy will change with time but this is its evolution so far.

Disclaimer: Holding at time of writing in Novaport’s Wholesale Smaller Companies Fund. No material above should be considered a recommendation to buy or sell any security. Please seek personal and professional financial advice before making any investment decision.


6 thoughts on “My Investment Journey (so far…)

  1. Whether it’s funds or stocks, the important thing is simply to get started on your investment path. I prefer individual stocks that pay dividends and focus on the reinvestment of those dividends to build a growing passive income stream. Thanks for sharing your journey… so far.

    1. Thanks for dropping by DH. Dividend investing can certainly be attractive, and quite popular here in Australia with investors looking for income (and I suppose within the online investment blogging community). I like the approach and also like to look at dividends as part of the overall capital allocation of the company, if I can get a better return on the incremental capital by the company paying out a dividend then I’d prefer the dividend, however if the company could get a return on incremental capital superior to me, I’d be happy for them to keep it. I can understand that might not be so if I was very keen on receiving income from my equity portfolio though. Hope you’ll return to my blog!

  2. Ciao WFT, wow that’s quite a journey! It seems to me that you took the right approach, learning from different situations and moving a step at the time. Do you invest solely in Australian stocks right now? No foreign action? As to the use of funds there are different “schools of thought” as far as I can see. I am of the “cherry picking” school, for the moment, probably because I have had bad experiences with funds in the past, but I am now changing this stance and considering funds again, although I have not invested in them yet.
    ciao ciao

    1. Ciao Stal – yep just Aussie stocks atm although after one of them spun off part of their business via the UK I hold a single stock on the LSE. Not much of my portfolio though. It won’t be long until I’m investing overseas, the Aussie market is <2% of global equities by market cap, so the pond is much bigger overseas. I've also been a bit wary of funds but there are a few that I think the management are sound and fees reasonable, so they might actually feature in my plan over the next few years.

  3. Hey WFT, that’s a great journey you’ve had so far – I wish everyone went through a similar financial learning experience at your age! Regardless of your approach, you can’t go too wrong investing early and continuously learning! My approach is a little similar to DivHut above, but focused on Aussie shares where we get those juicy Franking Credits, especially in a low-tax account. Good luck with the continuing evolution of your investment strategy!

    1. Hi Frankie – your approach sounds good, franking credits have real value to the Aussie investor! I was lucky to have a pretty healthy appetite for reading and learning as a teenager, so I devoured a lot of investment books 🙂

      Good luck with your strategy too.

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