In general, for most games or activities that we engage in, most folks get better at it with effort and time. In other words, the results of said activity has some sort of positive correlation with the amount of effort and time put into that said activity, of course, adjusted for the confounding effects of luck, talent and circumstances etc.
Think about it: if you play tennis, the more you play, the better you get. Now, you might have some “off” days when you are terrible, but in general, you’d play better than a complete newbie.
Not so when it comes to investing.
In this post, I’m going to profile someone I know. Let’s call her “P”.
P has a mid-level managerial position in an MNC, pretty famous, listed in the US, most people would have at least heard of it.
As part of the benefits of her job, she gets to spend 10% of her monthly salary buying stock in the company, at a 5% discount to the weighted average share price of the past 5 days, at a certain day of the month. In this scheme, 10% of your salary would be automatically channeled into buying the stock, and you’d hold the shares within some internal platform. I believe most MNCs have that scheme if you are above a certain level.
Makes sense, you wanna incentivize your employees and align interests.
P is also the furthest away from an investor as you can possibly imagine.
She has no idea how to read a balance sheet, she doesn’t know what’s the difference between cash flow and revenue, she doesn’t understand what’s NPM and she definitely doesn’t know all the common ratios like PER that investors harp on.
And no, she did not do any extensive analysis of the company’s prospects. By virtue of working in a managerial position in the company, she does know some aspects of the business, but it’s a small subset of the overall business (it is an MNC afterall). No qualitative analysis of any sorts.
She doesn’t follow any analyst reports, and in fact, she laughs at the notion of reading that. “So boring”
Technical analysis? LOL! I’m almost sure she’d laugh, like really genuinely laugh, if she understood what many folks are spending their time doing.
In short, she doesn’t care. She really doesn’t.
She merely focuses on her job, and man, she’s really good at it. That singular focus on her job makes her exceptional at it after some time, and she actually likes it. But of course. We all like to do things we are good at.
You’d more often find her talking about her job, rather than anything investing related.
She held ONLY 1 STOCK in her entire portfolio. Yup, just that 1 stock in that MNC that she works in. If she’s in the mood, she buys more with her own money. In fact, at any 1 time, she doesn’t even know what’s the share price of the company.
Since P started on this scheme, the share price of said company has done this:
I deliberately cut off the share price for privacy reasons, but as you can see, it has pretty much been almost a single way up, save for that few weeks in Q1 of 2020.
Recently, P was poached to join another company, enjoying a double promotion in the process. (if I understand the situation correctly)
Since she’s leaving the MNC, she decided to sell her entire stake, built up over 3yrs.
Back of the envelope calculation, the share price has appreciated about 120% since she first started putting money in. That’s 120% appreciation in just under 3 years! On top of that, since there’s a 5% employee discount and all dividends distributed are further invested and compounded, her returns over the past 3 years has been extremely stellar. I didn’t calculate the CAGR, but arithmetically, the total return at the end of 3 years is approximately close to 140%. (Meaning if she invested a total sum of say $1mil, it has now become $2.4mil, for example)
Obviously, this kinda results would put many many investors to shame. It definitely beats the S&P index by a HUGE mile, and well, the S&P index beats most active investors’ results.
P always tells me: “What’s so difficult about investing?”
She is legitimately puzzled by why people spend time and effort doing this.
She’d much rather spend her leisure time watching some singing competition like “The Voice of China”, or read some gossip news for entertainment. Or do useless stuff like discuss the finer details of Squid Games with her mum. Never ever anything related to investing.
In the earlier part of the year, the said MNC had a mini dip (as you can see in the chart above), due to muted earnings projections etc.
P didn’t even know it fell, despite the headline news mentioning it. When I told her, she asked for the reason. And after I mentioned the reason, she just simply replied “ok”, and promptly forgot about it.
Since selling out and booking in an eye popping gain, P has been ribbing me about her returns, which are achieved with
minimal zero effort, versus my own portfolio gains in the past 3 years, which has paled in comparison to hers and has been achieved with maximum effort.
This irritates me to no end. (Like seriously, she’s telling me she can “teach” me if I ask her nicely……)
So there. Investing is a weird game, one whereby results can have absolutely no correlation with effort, or time spent, or intelligence, or anything really.
And you thought Squid Games was weird.
The only consolation I have is that P is my wife, so I think I can maybe lay claim to a small part of that 140% returns someday.