Wednesday, July 23, 2014

How to grow your money and become rich through stock investments

Hi may I know if it would be wise to measure our portfolio including actual gains/losses? 

If so, is there any way to do it? Because the conventional investor would often tend to measure their gains or losses based on their current stock portfolio. Eg 8% growth for 2014. This are only paper gains/losses. However, it often neglects the ones that already have been sold for a profit or even receive dividends.

Thanks for your time and have a great day ahead!

I received the above email from one of my readers a couple of weeks ago. I fully agree with him that to be rich and successful in the stock market, investors should make the effort to note down the gains and losses made in their stock investments. The principles behind such an endeavor is not really to track the actually amount of gains and losses, but rather, to serve as a form of discipline and instil a sense of purpose to your investments. Such a practice can help a newbie investor avoid many investment traps and empowered him to make better financial decisions in the long run.



When I started investing many years ago, I would record every single gain or loss of my shares investments in a little blue notebook. In every entry, I would include some remarks or comments on the money that I have made or lost. Over the years, as the number of entries increased, my knowledge and experience grew as well. As I became more motivated to be a better investor, I realized that penning down my thoughts allowed me to reflect on my mistakes and improve my thinking process. From my little notebook, I learned two important lessons which shaped my thoughts on money management and investing.

The first lesson is that you can never beat the market 100% of the time and I have never met any investors who did not lose money in shares before. You have to accept that losing money is part of the game and you are considered very good if you win 70% of the time. Therefore, instead of putting all my monies on one stock and hoping that it turns out to be a multi-bagger, my style is to diversify and aim for a series of "small wins" on several stocks (not more than 10). At a broad level, regardless whether its stocks, bullion or bonds, my strategy is setting entry and exit targets on my investments because buy-and-hold strategy simply don't work anymore.



The second lesson is that you need to develop your investment methodology that suits your personality. Different investors have different approach and style. It is important that you understand your personality and develop the kind of investment strategies and principles that fit your character. Too many of my readers tend to have herd mentality and drift along with the rest when it comes to investing. This is a dangerous approach because investors often enter the market too late and get out too early, resulting in lesser profits or even losses. Thus, the aim of my blog, SG Wealth Builder, is to drive the right behaviors among investors and encourage all my readers to study the fundamentals before investing.

Always remember that investing is not about staring at the computer screen and clicking away your mouse. It is also not about fixing your eyes at the stock prices the whole day long. To be a successful wealth builder, you must gain knowledge, think through carefully and make the judgement call.

Magically yours,
SG Wealth Builder

11 comments:

  1. I realised you didn't answer your reader's email fully, esp the part about measuring realised gains/losses instead of current portfolio.

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    Replies
    1. I realised you didn't read my article carefully.

      Regards,
      SG Wealth Builder

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    2. Where did you explain it? Care to elaborate?

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    3. In my first two paragraphs.

      Regards,
      SG Wealth Builder

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    4. The first part of the the question , "Hi may I know if it would be wise to measure our portfolio including actual gains/losses?"

      I infer that you're saying yes, it's wise to measure actual gains/losses.

      The second part of the question is a how question - "If so, is there any way to do it? Because the conventional investor would often tend to measure their gains or losses based on their current stock portfolio. Eg 8% growth for 2014. This are only paper gains/losses. However, it often neglects the ones that already have been sold for a profit or even receive dividends."

      How do you include realised gains/dividends received and all past losses in your portfolio returns?

      I didn't read anything to answer that part of the q in the two paragraphs mentioned. Care to elaborate?

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    5. Use Excel's XIRR function.

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    6. Lizardo for the win.

      I kept my troll side in check.

      JW

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  2. I am investment portfolio measuring freak. LOL!

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    1. Yeah, I follow your blog, Uncle CW. You inspired me to plan my retirement actually.
      Hopefully there are more Singaporeans like you.

      Regards,
      SG Wealth Builder

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  3. I feel that tracking is a necessary part of investing. If one's portfolio performance is worse than an alternative lower risk investment option, it's probably time to re-examine what's wrong. Or, perhaps it's time to revert to the lower risk investment profile/benchmark!

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    Replies
    1. Agreed. But beyond just tracking, I think we need to rationalise and apply analysis where we go wrong or right. In this way, we build up our competency on investment over time.

      Regards,
      SG Wealth Builder

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