This conversation started over a couple of drinks.
“Cheng, thank you for introducing hypergrowth stocks to me, the returns are life-changing.”
“Life-changing?” My eyes lit up. These two words never crossed my mind. I probed further, “why is it life-changing?”
The reply was, “I have exceeded my retirement goals. I have never seen returns like that before. I can retire by this year (2021) which is 4 years earlier than originally planned.”
Never have I seen returns like that before too. It is almost unreal when my portfolio is up by more than 200%, it had tripled in a year. Do not expect me to repeat the same performance year after year, it is just not going to happen. It is also almost offensive and embarrassing to tell others that I tripled my portfolio in a year when their portfolios were not doing as well. Hence, I only kept this within a small group of close friends.
As I reflected on the words “life-changing returns”, it did not just happen in 2020. My journey to bagging life-changing returns started when the seed was planted many decades ago. It all started with,
2 basic investment principles from Benjamin Graham
- Safety First
When you take care of your risks well, the profits will take care of itself. Mistakes will happen, but it will not kill you. When you win, you win big. When you lose, you do not lose much. That is how we can run the investment marathon sustainably for decades.
- Profit from Volatility
There will always be opportunities when you can buy a great company during market corrections at a reasonable price.
Superior stock picking works.
Famous investors like Warren Buffett and Peter Lynch managed to achieve great results using the same 2 basic investment principles. This investment skill changed their lives and the lives of their investors forever.
How we did it
We did not go all-in on Tesla, Gamestop, Bitcoins or some other meme stocks. Instead, our portfolio was diversified according to our risk management, with 10-25 stocks of great companies across different industries.
These great companies were disrupting legacy businesses in every sector and industry, even before COVID-19. You will find SaaS companies in Social Media, eCommerce, FinTech, Oil & Gas, Cyber Security, Productivity Tools, Entertainment, Healthcare and Data Analytics etc. Tell me which industry that does not use software technology? All of them does!
However, the way we invest is counter-intuitive. Let me explain:
4 factors to investing for Life Changing Returns in 21st Century
I do not think these returns happen by chance. The lessons are simple:
1- Avoid lousy and average companies
Not all stocks are good. Not all SaaS/Tech stocks are good either. You will need to know how to identify them to avoid big losses.
2 – Do not buy low to sell high
Many experts teach you to buy low and hope to sell high. However, cheap stocks are cheap for many reasons. Low prices can go lower when the business deteriorates.
Do not hope for a turnaround for troubled companies. Only buy companies with great fundamentals. Most of the time they will be expensive according to traditional valuation methods.
To invest smart in the 21st century, buy high (at a reasonable valuation) and sell higher. Hold on to the stock as long as the fundamentals are intact.
Buy strong companies, get rid of the weak ones.
3 – Avoid overpaying for companies
You have to learn to value companies to avoid getting ripped off by the market.
In a bull market, everybody makes money. The true test of a portfolio is during corrections or bear markets. For example, you do not want to be a “bag holder” by holding on to GameStop shares at $300-$400.
Traditional valuation ratios like PE may not work for businesses in the 21st century, especially those that are capable of life-changing returns. Consider ratios like PS instead.
4 – HODL (Hold On for Dear Life) when the fundamentals never change
It’s simple, let compounding work its magic.
Snap shot of my portfolio returns:
I hope these 4 factors will become your guide to kickstart your journey for Life-Changing Returns in 2021. Leave your questions in the comments or join me in my next webinar where I’ll be sharing valuable insights on how I invest for hypergrowth returns.
Position sizing is important too.
If the author all in and get 500% return, his would 5-time his net worth.
If the author bet 1% of his net worth and get 500% return, he would generate only 5 % return on his net worth.
500% return on the net worth vs 5% return on the net worth.