Since last year I’ve been buying mutual funds and stocks. Now it’s time to check their performances. Prior to knowing something about stock investing, I bought some 5-star ( ranking given by morningstar.com ) stock funds out of insecurity. I thought the fund managers are professionals and I could count on them. Later after some studying, I bought shares of two companies based on my own research. Now the result is, all the funds are minus: The best fund is -16.65% and the worst one is -64.81%. For many reasons I cannot sell the funds for now, hopefully it won’t take too long to get even. Lucky that I didn’t throw too much money into the -64.81% one, so the loss is not really overwhelming.
Now the stock performance of the two companies: The one I bought last year, a big blue chip company in the Hang Seng Index, is +24.8%; And the other one I bought a short while ago is +31.35%. The recent rallies in Hong Kong are a little bit abnormal ( in my opinion ), so I expect the price of these two companies will go down a bit in the next weeks. I’m going to buy more shares of these two companies when the prices go down.
The most important lesson learnt here: Security lies in knowledge, but not diversification or anything else. Know the business of the companies you are eyeing inside and out. Know the policies of the countries where the companies are doing business. Know the competence edge of them in their industry. Know the relationship of supply and demand in their business. Know a realistic time horizon for holding the companies. When one has enough knowledge of all these, it is difficult to lose money. No matter what macro environment the global economic is in, there’s always a party going on somewhere, and the market is always being good to some companies, even just one or two. Find out these companies and _concentrate_ on them, do not diversify. As an individual small investor, one can do that but fund managers will have problems if they do so. Managing several ten or hundred thousands of euros is quite different from managing several billions. We individual small investors should take this advantage and maximize the performance of our portfolio. Many say buy and hold is out nowadays. But I don’t believe so. I still somehow believe in the market and the fundamentals of an excellent company. The -64.81% fund I bought is a Russia-theme fund. I believe there are earning companies in Russia, some may even perform really well in the stock market. The biggest mistake of mine is, I had no idea which companies I was buying there. I did not know their business. I am not an expert of the Russian domestic and international policies. I cannot even read news and analysis in Russian. It was like gambling when I was buying that fund. So it is all my fault, not the Russian market’s fault, not the fund manager’s fault. Had I known more about the Russian and East European market, I might do things in another way.
Recently central banks of many countries are printing money. Inflation in the near future is a logical result. The interest rate of the banks here is a joke, something like 2% per year. Most German people believe putting money in a bank for a fixed interest is safest for their money, well, the coming inflation will teach them the truth. Even though the stock market has gone up a little compared to Dec. 2008, prices of many companies are still attractive enough, and it is possible that this round of rallies will soon come to an end. It’s time to hedge the inflation.