2017 Year End Review

Happy-New-Year-Jumping-From-2017-To-2018

It’s the last day of 2017 so I thought it would be good to look back on my investment journey in 2017 and reflect on it.

Overall, I am quite satisfied with my journey and the progress that I have made, although there are definitely areas that could have been better.

Things that I have achieved or am positive about:

  • Discovering which style of investing I prefer and want to focus on, after exploring value companies, deep value companies and brilliant companies (my focus going forward would be brilliant companies with strong moats with positive moat trends)
  • Doing deeper level of research on and gaining deeper level of understanding of my existing and new companies, in line with my investment philosophy of non-over-diversification of mind (over diversification of portfolio by number of companies) and my rather concentrated portfolio
  • Spending a lot more time analysing companies (including reading many annual reports, company presentations and IPO prospectus) and reading investor letters, which help me to improve my investment skills and experience, and widen and compound my knowledge
  • Improving my understanding on returns on capital, in particular ROIC, which is one of the most important quantitative factor that I examine and think about
  • Improving my understanding on quality moats and moat trends
  • Finally started this blog, although I have been slacking on producing quality posts and write-ups on my analysis of companies (which is something I want to work on next year)
  • Started to more properly track and calculate my portfolio returns
  • Met more investors with similar or different investment styles/philosophy
  • Finished (and almost finished) reading 11 books, being:
    1. The Essays of Warren Buffett, by Lawrence Cunningham (one of my favourites as it really helps us to get into Warren’s head, and understand better the essence of investing psychology and the concept of equity/business analysis and Mr Market)
    2. The Little Book that Builds Wealth, by Pat Dorsey
    3. The Most Important Thing Illuminated, by Howard Marks (very good book on understanding risk and the non-normal distribution of risk-outcome)
    4. The Outsiders, by William Thorndike (very good book on understanding the capital allocation behavior of CEOs)
    5. Man’s Search for Meaning, by Victor Frankl
    6. 100 Baggers, by Christopher Mayer (very good book on long-term investing and multi-bagger investing, which are aligned with my current investing style)
    7. Tap Dancing to Work, by Carol Loomis
    8. Shoe Dog, by Phil Knight (very interesting business stories and helps me to understand consumer retail business better)
    9. Autobiography of a Yogi, by Paramhansa Yogananda (Steve Job’s favourite book)
    10. Poor Charlie’s Almanack (traditional chinese version), by Charles Munger and Peter Kaufman (finishing soon; good exposure for me into learning how to think better, lateral and cross-discipline thinking and using mental models)
    11. Why Moats Matter, by Heather Brilliant and Elizabeth Collins (in progress; further strengthen my understanding of moats and moat trends, which are very important concepts of my investment style)

Things that I am neutral about:

  • Achieving a portfolio XIRR of 13% for 2017. I am neutral on this because:
    • first, I think this return is decent only (however, what I am positive about is I think I have made quite some improvements and progress in terms of my investment knowledge and skills (which may not/would not be reflected in short-term portfolio returns) and I am becoming more optimistic about the future returns that I think I can achieve)
    • second, this XIRR is overstated because it does not take into account the effect of cash drag (although I don’t hold much cash for most part of the year, although increasingly much so towards the end of the year)
    • third, I don’t think this type of short-term returns information provide much meaning, since in the first place I do not believe that the market prices convey any meaning in the short term or at any point of time (the market is only a voting machine in the short run), and therefore the XIRR which is quite dependent on the market prices at the beginning and ending of the period would not provide much meaning (if one is looking to figure out his investment returns), but just another data point or observation. A better way to track my returns would be to track the increase in operating earnings of the companies in my portfolio, weighted by their portfolio weightage, which I hope I would gather the time and effort to do so in the future.

Things that could have been better and I would like to work on next year (which I am focusing mainly on two points!):

  • Although I have improved quite some on both my quantitative and qualitative analysis of the companies, there are still much more room for me to work on on the qualitative side, which I think is the main differentiator between a decent business analyst and a very good business analyst, and which I intend to focus on more next year
  • Ultimately, a good business analyst has to be able to present his thesis in a good form, which I think one good form is to pen down the thesis and the essence of the investment in an article. This is something that I have not done so far (due to my procrastination and obsession over perfection) (I have been mainly just talking about/discussing my investment thesis and points in person with other people, but I would say what’s lacking from a conversation approach of presenting ideas is that the ideas are less gathered and organised, and in some way, fleeting), but is something that I will definitely work on next year because I think this will be the most important action that will bring my skill of investment to the next level

That’s all for the review and I wish everyone a more successful investing and a happy life in the year of 2018! 🙂

 

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