About Time

Part 1 - FY24 done and dusted

Now that we're about a year and a half into my journey of writing publicly, and with the end of another financial year upon us, I thought it would be a great time to revisit some of the theses I published in FY23-24 and share more learnings from this past year. It seems to be a common habit among investors to publish their yearly returns openly, so I might as well join the trend. I reflect on this trend a little more below.

It’s gratifying that I’ve written about businesses that have experienced significant re-ratings, contributing to some good returns in FY24 for Goforgrowth. However, the mistakes always hurt more than the wins, and there’s more to learn from mistakes. Given that I’m very early in my journey as an investor, I’m much more focused on learning and growing than anything else.

Work can compound by teaching you, since learning compounds. This second case is an interesting one because you may feel you're doing badly as it's happening. You may be failing to achieve your immediate goal. But if you're learning a lot, then you're getting exponential growth nonetheless.

-Paul Graham

I’ll start this three-part series by reflecting on the general performance of the year. Later, I’ll talk about the many things I got wrong and share what I've learned from those mistakes. The last part is about some things I got right (for now), and trying to distill what can be gained from wins at what looks like the beginning of a bull market.

I’ve structured this small series into three parts:

• Part 1 (Today) - General comments and learnings from the financial year

• Part 2 (Next Week) - My losers and what I learned from them

• Part 3 (The week after next) - Some winners and what I learned from them

A Good Year, at Last

This year has been positive with returns of 40%.

*Note: My Sharesight reads “in the last year” because I didn’t take a screenshot before the year ended. This screenshot was taken on 6/07/2024.

This result was strong enough to pull my 2-year returns into positive territory above my benchmark.

However, if we zoom out one more year to my 3-year returns, the picture quickly becomes less flattering (I would take a screenshot here too if Sharesight permitted this option). I wrote about my underperformance openly during those two down years. If you want to brag about your wins, you should also have the decency to present your mistakes openly.

The trend of retail investors writing openly about their yearly results is interesting. The reason I’ve decided (after long deliberation) to jump on the bandwagon is simple: doing things in public has helped me increase the speed of improvement. It also attracts some nonsense, but on the whole, there has been more upside than downside.

Surround yourself with people who have the same goals as you. Rise together.

James Clear

It’s not all positive, of course. The two biggest drawbacks to this trend I see are:

1. Some are very selective about what they share, quick to promote the good years, and disappearing in bad times. That’s simply lame.

2. Seeing others share very positive returns when your strategy isn’t delivering results could cause you to make the wrong decision at the worst time. I don’t have a simple solution for this, other than being able to take a step back, reflect deeply, and think independently.

Returning to my results, I’m sure we can all agree that this good result is too short a performance period to be labeled as skill. We all had an inkling that the markets would become favourable to small and micro caps again. Typically, at the beginning of such periods, a large and quick re-rating causes inflated performance. It feels to me that this is what the last 6 months brought about.

With the goal of this post to share lessons learned, let’s not delay these lessons any longer. Here they are.

1. Hang in there

One very simple lesson from this positive year is that you should stick to your strategy long enough to see it play out.

How long is long enough in the markets? Perhaps a simple answer should be a full market cycle from bear market to a complete bull market and back. About 10 years. Give or take. But that’s too simple a heuristic, and certainly, one wouldn’t want to keep doing something that doesn’t work for 10 years. So the short answer is ; it’s up to you.

Investing in micro and small caps can be very painful; it’s typically the first part of the portfolio to get axed by institutions when they sense stormy skies ahead. Funds are also often slow to return to this area, waiting for signs of recovery to be in plain sight before re-entering a part of the market that caused them a bloodbath.

But this downside is often the price to pay for the large potential upside.

Why not just buy the NASDAQ 100 and call it a day?

If 40% returns sound good to any of us, we should remember that simply buying an index that tracked the NASDAQ 100 would have delivered nearly the same return in the past 12 months.

Undoubtedly, the effort-to-return ratio would have been much higher by simply putting in a buy order once and forgetting about your portfolio for the next 12 months.

So how do you know if you should stick to your strategy when other, seemingly easier strategies seem to be outperforming you?

For me, this is where passion comes into play. Investing has never felt like ‘work’ to me. I’ve been passionate about businesses from a young age, having started my first business quite young (not knowing at the time that this is a trend I would continue all my life, hopefully). Trying to make an intelligent bet on where I think the future of one business is headed will always be a pleasure.

Also, perhaps this is an unpopular opinion at the moment, but I struggle to believe that the NASDAQ 100 can continue this unbelievable streak of performance for another 5 years. If your heart is in it, I think this is a good litmus test for sticking to your strategy.

2. Momentum

Another investor which I’ve come to respect through his writings, Guy Carson at Tauranga Investments wrote in his monthly newsletter about the power of momentum. Momentum is an incredible driving force in public markets, especially at moments of peak emotions in the pendulum.

Guy ends his most recent monthly update with, “Momentum, both positive and negative, is a significant force in financial markets and a lot of the time you just have to go with it.”

While it’s not my personal style to chase momentum, what I’ve learned from it is that you should be very careful about trimming your positions as they start to move upwards. Many of my positions have shot far above my assessment of fair value. In the winners section, I’ll share a relevant example of the dangers of trimming past your assessment of fair valuation. In my case, if I had been too pedantic about it, I would have achieved worse results, given that the majority of my returns came from 3-4 companies in a broader portfolio of 20 companies.

3. Write

If something is important to you, then you should write about it. If something is very important to you, then you should write about it publicly.

My initial goal in writing publicly about investing was to grow my network of other investors. None of my friends invest in this space (all think I’m crazy, and probably rightly so), so it felt like a lonely passion project at times.

I got more than I expected from writing publicly. Investors I have a ton of respect for started reaching out. I spent time with many over coffee and learned more in those one-hour conversations than I had by reading entire books.

While it’s not been possible for me to keep the writing cadence I wanted (and I apologise dearly to my readers), I don’t intend to stop writing anytime soon.

4. Get Feedback

Building on my previous point, one of the benefits of deciding to start writing publicly two years ago has been the relationships this opened for me. Relationships with other investors you respect, who have more experience than you, position you in a great place to get valuable feedback.

As a tangible example, Claude Walker gave me the chance to write for a rich life after last year’s reporting season.

I chose to write about two of my holdings, Playside and Camplify. He pointed out some positives in the articles, namely the good groundwork I had done to get insights from their customers. But more importantly, he pointed out two things I could have done better:

1. Plot your most important metric on a chart to see if how moves over time. It’s always easier to see things visually.

2. Be clear on the 2-3 most important metrics you will track over time to tell if your thesis is still on track.

These two pieces of feedback are so simple that I couldn’t help but feel like a fool for not having included them in those articles. But that’s how you learn: repetition, reflection, and feedback. No other way. Thanks, Claude, for making me a better investor.

5. It’s you vs. you

One of the best practices I've adopted in the past year is to start tracking my performance against myself. This is a strategy I picked up from Ian Cassel, in his article “How Much Are You Hurting Your Returns?”. Ian spotlighted this idea which originally came from Nicolai Tangen, the CEO of Norges Bank Investment Management, Norway's sovereign wealth fund.

Doing this has been an incredibly useful practice, and one I suspect will become even more useful over longer periods of time.

I have a simple method to do this. I capture my portfolio at the beginning of the year using Google Sheets, which fetches current or historical securities information from Google Finance. I take this screenshot twice per year since I’m not incredibly active (I suspect this strategy would not be feasible for a trader).

Every quarter, I review if the changes I made were positive or if they detracted from my performance. One quarter may be too little time to tell, but in a market that moves quickly, there are still lessons to learn if you look close enough.

Conclusion

It’s been a good year, but this is only the beginning. If time permits, I will be doing this for another 30 years or more, so there’s plenty more to learn. And hopefully, there’s plenty of time to learn it.

I’ll get deeper into the weeds next week to draw some lessons from some losers.

“A golfer has to learn to enjoy the process of striving to improve. That process, not the end result, enriches life.”

― Bob Rotella, Golf is Not a Game of Perfect

Thanks for reading folks.