The Hedgehog Portfolio Hits S$500k!

In my previous post (“The Hedgehog Portfolio Hits S$200k”), I celebrated hitting this small milestone on my second investment portfolio. More importantly, I shared that the hardest thing about investing is starting.

After speaking to many young working adults, one of my latest observation is that they are too focused on working for money.

Apart from setting aside their emergency fund, most of them are under-investing heavily.

You see, there are many ways to invest… through robo-advisory, low cost ETFs, stocks, bonds, and other insurance plans. The key is to shop around and assess which one meets your risk profile.

At the same time (and more importantly), the key is to devote time to learn more about investing.

I know that this might be seen as an exaggeration, but learning about investing could bring forward your goals of being financially free by YEARS!!

Most people are pre-conditioned to think it is difficult to set up an investment account. Hence, they delay their decisions to even open an account.

While this may seem like something insignificant, they are actually paying an unseen “price”.

Since they do not have an account, they will tend to also delay the need to learn investing. That means they miss out on using their cash to generate higher returns.

I truly believe that if anyone is willing to spend the time to understand how to analyse companies, they will have a HIGH chance of having more returns as compared to a bank account.

From here, I believe that you can see how delaying one simple decision of opening an investment account can lead many to miss out on many potential opportunities!

My Results So Far On The Hedgehog Portfolio:

I first funded this account on January 2019 but left the account empty without any stocks. It was only after May 2019, that I started to manage my Hedgehog Portfolio on top of another portfolio held in my ThinkOrSwim account.

Since inception, my hedgehog portfolio has received a net cash inflow of S$149,119.99.

However, we have been subject to quite a few events which rocked the market quite a bit in the past few months. The most obvious event, which we will likely remember for a long time, is the COVID-19 pandemic.

However, despite the volatility we’ve experienced in the past few months, I have continued to remain invested in my stocks.

Why?

You see, the world is filled with uncertainty every single day. Panicking from waves in the stock market is a sure-fire way to be stressed out all the time.

This is just a normal feature in the stock market. It is not a bug.

But unfortunately, we know that we as human beings tend to respond better to negativity as compared to the hope of a better future. This is reflected in our daily news cycle.

See, if news websites start to report good news every day, how many people would buy in and read it?

I’m fairly certain that most people wouldn’t even click on those articles!

So if they were to give you the honest truth, most of these news websites can’t command high advertisement prices to earn money.

Psychologically, our brains tend to be more receptive towards negative events instead of being hopeful for a better future. We should, however, not let this scare us too often.

So how does this affect us as investors?

With how pessimistic the world has become lately, it’s enough for us to throw in the towel and say “I’ll stop investing and let’s hold cash”.

But wait a minute… Look at all these positive things we’re ignoring!

•Amazon grew their sales by 40% Year-on-Year in their latest Q2 2020 results
• Pacific Biosciences of California is creating a better sequencing machine than Illumina
• Facebook continued to report revenue growth despite the pandemic
• Zoom reported revenue of US $663.5 million, representing growth of 355% Year-on-Year in Q2 FY2021

As a direct result of their growth, the share prices of these companies have appreciated tremendously!

So why are we not hopeful?

We keep falling into this trap, because we tend to overestimate the negativity in the world and underestimate the positivity in the world.

Behind the negative barrage of news headlines, there is continuous innovation and progress in humanity.

Learn to benefit from it by investing in great companies! Let’s not be affected by it!

Because of this mindset I have, I averaged up my stock positions and I rode through the volatility in September and October. Currently, my portfolio is up 199.65% this year.

(Be part of the Hedgehog’s journey – read from the start here!)

Key Investing Takeaways

There is almost 2.5 months left before we end this year, and my target for my hedgehog portfolio is to hit S$650k.

Sounds insane? I don’t think so!

It should be highly possible, given the growth trajectories of the companies in my portfolio.

But, enough about me. I’m here to help you!

Here are some of my personal takeaways that you can implement immediately to assist in your investing journey.

1. Power of Journaling

Learning a single skillset is about repetition.

But more than that, it’s all about knowing what went wrong and what went right.

It’s just like the Chicago Bulls when they’re improving their strategies. They re-watch their gameplay and they reflect on how to become better.

As investors, it’s crucial that we do it too.

But when we invest without any reflection, how can there be any progression?

See, when I made my 199% portfolio gains this year, it was because of my intentions. I relooked into what was I doing and how I could improve on it. I even asked myself over and over what top investors would do, so that I could be more like them.

And these are some things that I know they are like:
1. They are not shaken by market volatility.
2. They are focused on fundamentals, not market noise.
3. They have ridiculously high requirements for companies before those companies could be considered for their portfolio. They expect ridiculous revenue and/or profit growth.

From there, I created my game plan.

See, I know that I cannot have a multi-millionaire portfolio if I am thinking like an investor with a $100k portfolio.

And to solidify my learnings, I knew I could do more. After all, I have a community that I can rely on!

So last night, after doing my reflections, I asked my GIM community members what were their breakthroughs and transformations in the past few months.

Many of them gave their responses, and I was super glad that their takeaways thus far resonate with mine. It’s a great way to see if all of us are on track!

A mindset shift is extremely underrated, while insanity is doing the same thing over and over again and expecting different results.

2. Willing to Pay Up for Good Quality Businesses

Whenever we analyse companies, we first have to understand whether the business model is sustainable and has a bright future.

Second, we decide on the price to pay for the business.

Usually, it’s never a specific figure but a range of prices. I’m OK to overpay up to 10% on a case-by-case basis.

For example, if Peloton‘s fair value is $90, I am willing to pay up to $99 ($90 * 1.1).

Good companies execute very well. Sometimes it may look like I overpaid, but if Peloton releases news of entering into a partnership, agreement or new geography, the extra growth could compensate back for the price I’ve overpaid.

With good companies, I can make the mistake of overpaying. I’m sure of that.

Because you see, sooner or later, the value will catch up.

And I know, many of you may ask, “What if the share price dropped after my purchase?”

That’s okay too.

The pain of not owning the shares is COSTLIER than the pain of overpaying for the shares in the short term. Being a cheapo is the best way to miss out on the next 100%, 200% or 300% returns!

That being said, I would caution investors that this advice works only on exceptional companies, where you feel that they have:
1. An exceptional management team
2. A strong marketing process
3. A group of loyal customers and sustainable high growth rates.

3. Time Horizon

Make no mistake. I do not have any special powers, nor do I claim to have any!

I definitely cannot predict what Donald Trump’s next move is going to be, or whether he will be re-elected! That is a very tough job that I would rather leave it up to the political analysts to figure it out.

I also am not able to give you a definite answer if you ask me what would be the share prices of my companies in the next few weeks! I noticed that many of my friends have been asking me this question. Let me sound it out now that I have no crystal ball to predict this as well.

However, if you ask me what’s going to happen to my companies in the next 5 years, I can tell you immediately that I believe their share prices will appreciate for sure.

With that understanding, I lengthen my time horizon and my holding period for every company I own, so that I can stay invested enough to benefit from the upside created by the management teams.

You cannot expect a seed to grow into a tree within a few weeks. It takes time.

This same logic applies towards investing in great companies.

Conclusion

Over time, I tend to believe that investing has more to do with understanding the business model than analysing numbers.

Investing is both logical and psychological. Don’t just focus on the logical aspect, work on the psychological as well. That’s where you will start to experience huge growth in your portfolio.

Write a journal and reflect – that will definitely help you to improve.

“In the short-term, the markets are driven by sentiments. In the long-term, markets are driven by real earnings growth and management execution.“

I hope my article has benefitted you. If it has, please pay it forward by sharing it with more people!