Recently, a friend sent me a post from NUSWhispers claiming that he has managed to make 6000% returns on the US stock market (I think he’s likely buying a bunch of call options on things like Tesla, Zoom, Palantir etc.) over a period of 9 months.
I was quite surprised but on hindsight, I think there are a few lessons to be learnt here.
- I’m happy that you managed to make money from the stock markets and have overperformed most fund managers out there. Kudos to you.
- I’m wondering if you are able to consistently (that is the key word) generate above market (indexed by S&P500) returns in the market.
- I’m also wondering if you have hedged your risks. Remember that it is harder to make back your principal when you lose it than to make profits. Simple example as follows –
You have a portfolio with NAV of $100k.
(A) For you to make an additional $50k in the market, your ROI needs to be 50%.
(B) If you lose 50% of your portfolio NAV, to recover the NAV (which requires you to generate $50k as well) would require 100%/50% – 100% = 100% ROI, which is harder to generate, simply because your baseline has been hammered down.
- Some people have said “What fundamental analysis? Just full on leverage on things like TLSA and PLTR and ZM.” My response to such comments is that you have failed to see the main point in investing. There is no use trying to time the market. It is better to invest in top quality companies at a fair price. No need to chase the hype. I generated almost 4x over 6 years (consistent 25% to 30% IRR) despite multiple market corrections because I bought into top quality companies. My question to you is “What if the company goes sideways? Do you have the ability to stomach your losses?”
- When buying a stock, you are not just buying a counter on the stock market that somehow has some trading activity going on. You are becoming a partner in the business. You need to think long term, not just speculate. Many of my friends have been burnt when they speculate. My advise is not to have more than 10% of your portfolio as “speculative funds”. This way, your risks and downside is well protected.
With that said, I would like to remind all investors of two important laws in investing:
- Never lose money
- Never forget rule no. 1.