Get Rich Slowly. But Not Too Slow...
In 2016, with RM2,000 in my bank account and a mountain of student loan, I wrote on the walls of my Facebook account, a very powerful declaration, “I will be a millionaire and financially free by the age of 35!”. I gave myself 10 years to achieve it, thinking that it would be enough. When my loved ones asked me, what do I plan to do to make such a goal a reality? I told them that I will simply invest in the stock market and become a millionaire! They laughed. It was quite insulting to me back then but I was very determined to prove them wrong.
Looking back, I now understand why they laughed. The first 2 stocks I bought, Msports and Xinquan, turned out to be fraudulent companies. They both disappeared from the stock market and I lost all my capital. Later on, I made many more mistakes in the stock market. In fact, here are some of my most painful losses after Msports and Xinquan:
I have also lost a lot of money trading put and call options. That was the first time I saw my 50% portfolio value wiped out within a year. The experience was so painful that I decided to delete that declaration I wrote on my social media - which is the reason why you couldn’t see it today. I had been 3 years since I made that declaration and I have yet to achieve any results. I thought that I am probably not destined to achieve it.
But there is something that I am very happy I did. Despite being so demotivated - I never lost the obsession. Before I slept, I think about it. When I woke up, I am thinking about. Even at work and during work, I am thinking about it. I was recalled being so obsessed with financial freedom back then that I was willing to do anything to achieve it. I had 7 more years to achieve it. Why should I give up now?
2 years later, these are the results I am looking at:-
2021 Year To Date Performance:
Portfolio Results Since Inception
(I Moved To Interactive Brokers in October 2020):
P/S: In case some you are wondering, the returns above excludes my returns from Gamestop. I decided exclude it from my core portfolio to give a more realistic picture.
On top of that, I now find myself able to generate the income I need to comfortably finance my monthly expenses. Upon reflecting the entire journey so far, I have only completed 50% of the journey and out of the 2 goals I have set for myself (Become a millionaire and Achieve financial freedom), I have achieved one of it.
So Now, The Important Question: What Changed?
Firstly, this strategy is designed for someone like myself who started with a small sums of capital. I had to work my way up to develop my own skills and also save up to build the assets I have today.
Secondly, I designed my investment strategies to help me achieve financial freedom ASAP. Jeff Bezos once asked Buffett why doesn’t everyone just copy his investment strategy, to which Buffett replied, “because nobody wants to get rich slow”.
I do agree that it’s important to not aim to achieve wealth too quickly. The process matters more than the speed, yes. But at the same time, I do not want to wait too long to achieve it - definitely not by retirement age. Our life is finite so I want to spend as many years as possible, doing what I love to do. Waiting to enjoy doing what I love only at retirement is like, as Buffett puts it, saving up sex for your old age.
Therefore, my strategies will NOT be suitable for everyone, especially if you have a weak heart or cannot take volatility. This strategy is also NOT suitable if you are strapped for cash. This is not a miracle strategy to get you out of a bad financial situation. IT REQUIRES WORK. Hence, if you want to emulate, use it only when you are ready.
First, Build Cash Flow Generators
From first hand experience, I can tell you that it is hard to invest with small sums of money. Many people will tell you that you can start investing with as little as $100. But when you put that money in the stock market, even if you 10x the amount, you are only going to get $1,000. That’s not going to do much for you. If you invest anchovies, you get back anchovies.
The first right move I made was to focus on increasing my disposable income. This process took me about a year or two to set up. Initially, I thought options was a good method to generate the cash flow I needed, but I was wrong about it. You can read more about that here.
Having multiple cash flow generators was key to my investment strategy. When stock prices fall, it is common for you to hear experts shouting: “Buy MORE”! I wanted to do that as well back then. But I then realized I had a problem, I am out of funds. This, my dear readers, is a situation that I would like to call a Checkmate.
There are 3 ways which I used to increase my cash flow:
1. Increase My Value In My Career
Increase the value of your work to your employer. You do this by either helping them make more money, help them to reduce their costs meaningfully or help them increase efficiently significantly. In my case, I researched and helped my employers to make more money back then by designing new products/programs for them to sell. But for this to work, you have to ensure that you are well rewarded for your work. Negotiate with your employer before delivering. You have to respect your efforts.
2. Eliminate Debt & Reduce Expenses
One of my best moves I made was to eliminate my debt. I had close to RM40,000 in student and various credit card loans back then and I had to make a monthly payments between RM500 to RM750. I then made a conscious decision to use all my savings to pay off my debt. I received a lot of criticism back then. Apparently, the RM40,000 in savings I could have used to invest in stocks and made more money. But in my mind, I had 2 choices:
a. Invest the money in the stock market with no guarantee that I will make returns.
b. Pay off the debt and guarantee myself an additional savings of RM500 - RM750 per month.
To me, the decision was obvious. And reflecting back, it was the right one. There feeling of becoming debt free is priceless. The additional RM500 - RM750 per month helped me to save up quickly and invest more. In fact, I got back the RM40,000 very quickly.
I learnt not to upgrade my life too quickly as well. Once the upgrade has been made, downgrading is extremely difficult. For example, if you are used to driving, it’s hard to convince you to switch to public transport. This decision helped me to keep my expenses really low. I remember I can survive with less than RM 2,000 a month. I have been called stingy, money-obsessed or a person who doesn’t enjoy life. But the truth is, happiness in a way is free. You just need good relationships with friends, family and loved ones. I feel equally happy when I am chatting with my friends in a hawker stall at night compared to going on an expensive holiday.
You do not have to do this for life anyways. I only did this for about 5 years before I can start relaxing the budget.
3. Build Other Sources Of Income
Warren Buffett once mentioned something which I truly agree with: Never Depend On A Single Source Of Income. I learnt this while observing Warren Buffett’s life story as well. He didn’t start off with a lot of money. He took up various ventures from selling Coca-Cola to delivering newspapers to raise the funds he needed to start investing. Thankfully in the world we live in today, we can easily create alternative sources of income using technology. We just need to learn how.
I spent money attending many classes from dropshipping all the way to internet marketing to develop different skills. Some ventures are successful whilst some ventures are not so successful. But developing and honing these different skill sets helped me to diversify my source of income which now help me to create the building blocks for my portfolio.
"Invest in as much of yourself as you can. You are your own biggest asset by far. Anything you invest in yourself, you get back tenfold, And unlike other assets and investments, nobody can tax it away; they can't steal it from you." - Warren Buffett
P/S: As of now, I am guiding a group of people how to create and scale side income for themselves via a block chain project called Axie Infinity so that they can increase their disposable income and invest better. If you are interested to be part of it, simply drop me a message on social media:
I Raised My Standards
Looking back at how I invested when I first started, I realized that the stocks I picked are completely without standards. I would easily fall in love with a stock just because the numbers such as revenue, profits margins and cash flow looked beautiful. One of such companies I found was Foot Locker. The company had a wonderful track record generating revenues, profits and cash flow. The balance sheet had very little debt and a lot of cash. But after many years since discovering the company, it has produced very little returns for the investor.
It is then I realized that investing by just looking at the numbers is like driving the car while looking at the rearview mirror. The numbers we see are always lagging compared to the actual situation the company is currently facing. It is based on corporate decisions in the past. But it does not guarantee that it will repeat itself in the future. Hence today I dedicate majority of my time assessing the company’s current and future prospects. Understanding the company very well helps a lot when it comes to building conviction. And with conviction comes holding power and the courage to buy more when opportunity arises.
For example, one of the stocks that was responsible for my returns so far is Digital Turbine. The company has done many key acquisitions that significantly improve their market dominance but somehow, investors were dumping the stock citing reasons from inflation to the FED’s Monetary policies to trade wars. But for me, the reasons were illogical and I had 5 entire months to accumulate as many shares as possible. With the cash flow generated everyone month, I had the perfect opportunity to buy as much as possible when investors are fearful.
Another one of such opportunities I have found so far was Wide Open Agriculture which I have been accumulating.
“Focus on looking for great companies, operating in the industries of the future, and run by a great management team. Numbers alone tells you a lot about the past but very little about the future” - Derrick Lau
But one of the biggest upgrades in my investing methods is to choose 1 investing style to focus on. Back then I had many. I focused on growth, asset play, dividends etc. And because of that, I tend to get confused by many different valuation and research methods as well. In 2019, I decided to focus only on one investing style - Growth. I no longer consider investing in dividends or asset plays and with that, my valuation and research techniques are only useful for growth themed investments. This also means that I also have a lot less distractions. The investment process became a lot simpler and because of that, it became more effective.
As Bruce Lee puts it beautifully,
I Concentrate My Investments
Learning to concentrate my portfolio was one of the biggest change I made in 2019. Heard these conventional wisdom before?
“Always ensure that your portfolio is diversified”
“Never keep all your eggs in 1 basket”
“Never invest more than 10% of your portfolio on a single stock”
I followed those advice closely. That is until I read a quote mentioned by Warren Buffett, “Diversification is protection against ignorance. It makes little sense if you know what you're doing.”
I observed Berkshire Hathaway’s portfolio and as you can from the screenshot below, they have more than 30% of their portfolio in a single stock. This challenged the conventional thinking I have been following all these while. Was I wrong?
In 2019, my Malaysian portfolio had many stocks from Hartalega to Revenue Group Berhad, to Rexit and Maybank. After a long and hard thought, I decided to take the leap of faith and put all my money in the one stock whose future I am very confident of - Hartalega.
I have visited their factories many times, had many close friends working in the company monitor their progress for me and also constantly engaged with the directors every year in general meetings. With so much information and insider updates, I was very certain that the company will prosper in the years to come. Meanwhile for other stocks like Rexit and Maybank, I had little idea how much revenues and profit they will even produce the next year.
Hence in 2019, I sold all my Malaysian stocks and put them all into Hartalega. My purchase price averaged to about RM5.45 a share.
Hartalega remained flat until the Covid-19 pandemic struck in 2020. The stock rallied to about RM20 a share at its peak. The valuations became euphoric and unsustainable to which I sold majority of my holdings around RM15 to RM16 a share.
Because of the strong conviction and the fact that I focused all my funds on Hartalega alone, my portfolio literally tripled in value. That was the first pot of gold I made which allowed me access to invest bigger in the US stock market. Looking back, had I trusted my efforts and betting big on my research, my total portfolio would probably be less than a third of what it’s worth today.
Even in my core portfolio, my investments are still concentrated as you can see from the screenshot below.
Thinking about it now, it makes a lot of sense to me to concentrate your portfolio.
If you had done so much work researching on the company, why invest so little? Do you not trust your work?
What if you are right? Your “anchovy” sized investment will only produce “anchovy” sized returns. Is it worth it then?
Are you respecting your hard work?
I Keep Little To No Cash
This is probably one of the most controversial part of my investment strategy. As of the time of writing this article, you can see from the screenshot below that I keep very little cash in the portfolio.
This goes against conventional wisdom which is to ensure that you always have cash on standby to capture any investment opportunities. I used to follow that advice as well. But today I do not follow them for 3 different reasons:
I Don’t Need The Cash
I have my emergency funds already set aside. All the money in the portfolio has only 1 purpose, to work hard for me and increase my wealth. Plus I have worked hard to build multiple cash generating assets to continue pumping cash into the portfolio. Therefore, I need every single cent to be working hard. Not sitting around idling. The more cash sits around idling, the lower your portfolio returns.
Idle Cash Stays Idle Most Of The Time
I used to hold a lot of cash, waiting to capitalize on investment opportunities. After 3 years of doing so, I realized that the cash is still waiting for opportunities.
There is a saying in physics: “A body continues in its state of rest, or in uniform motion in a straight line, unless acted upon by a force” which I found to be really true even for investing. It became a habit to keep cash even when it is not necessary. I was so used to keeping cash in my portfolio that even when opportunities come by, I find it hard to deploy all of it!
To make matters worse, the stock market goes up more than it goes down. Since I started investing, there would be someone every year telling me that the stock market is going to crash - and every year it just keeps going up higher. And even if the correction finally came, it wouldn’t give you much advantage anyways.
One good example was Paypal. Around late 2018, I was interested to own shares of Paypal after being influenced by a friend. However, due to warnings from many investors that a correction is coming, I wanted to wait for it to go below $80 a share before buying. Sadly the stock price rallied and when the correction finally came in 2020, it went back to $80 a share. That was the price when I was initially interested in the stock! In 2018, $80 a share was expensive. But in 2020, suddenly $80 a share was attractive. This was because the value of the company has increased considerably since then.
The saddest part was, till this day, I failed to own a single share of Paypal.
Peter Lynch describes this situation most accurately, “Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves”.
I Learn From Track Record
Lastly, I learnt from observing how many fund managers manage their funds that it is not required to hold cash. For example, when I took a closer look at portfolio compositions of successful Exchange Traded Funds (ETFs) such as QQQ, I noticed that many of them own very little cash. They are fully vested most of the time.
Yet they have performed so well across more than 20 years!
I have checked the portfolio composition of many different ETFs such as SPY, ACWI and XLK and noticed they hold almost 0% cash and have performed very well also! Could this be a coincidence?
It finally made sense to me when I subscribed to ARK Funds trading notifications. I noticed that ARK ETFs hold very little cash as well. But what they do most of the time is move funds from one stock to another stock.
What if I could not identify a stock to buy in the first place?
Here’s an idea. While waiting till I find one, I will dollar cost average on an ETF! Haha!
In summary, these are the strategies I deployed since to help me to achieve what I have today. I started by building cash generating assets that are used to invest in stocks with high conviction in a concentrated manner and at the same time, hold very little cash as most of them will be fully invested.
But I must warn you guys though, although this has worked well for me, it might not work for you. This is because it needs a lot of work especially when it comes to keeping yourself up to date with the companies that you are invested in. On top of that, by investing in such a concentrated manner, you need to build a conviction strong enough to withstand bone crunching volatility
To help me, I keep a journal for every stock that I follow so that I am always updated and reminded about the past, future and present about the company. After all, to be rewarded for your effort, you must first put in the efforts, no?
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