In 1955, Fred Schwed wrote a book entitled “Where are the customer’s yachts”, where someone visited the harbours of New York and found the waters littered with luxury yachts belonging to bankers and brokers who made it big on Wall Street.
The visitor then asked the guide a naïve question: “Where are the customer’s yachts?”
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The book raises an important point about the financial industry, giving financial advice was highly lucrative, but receiving and acting upon that advice was not.
Because if advice worked, there would be more yachts belong to the customers.
The customer’s yacht: An ERM graduate’s $500,000 portfolio
The Early Retirement Masterclass (ERM) program has graduated 21 batches or 552 alumni. Being a program that has run for three years, we are finally seeing an opportunity to present some of the more stellar results coming out from the program.
One student was kind enough to allow me to pay a visit to his “yacht”, hints of a lifestyle based on adopting 12 sample portfolios of the ERM program.
Student M, a finance professional in his mid-30s, attended my program as part of Batch 10, which was conducted in December 2019. I was not aware of his stellar performance until he participated in a refresher session last weekend.
I designed ERM so that all portfolios built by each batch are accessible in a private Early Masterclass Facebook group. So M was able to gain access to the portfolios constructed by batches 11 through 21.
In less than two years after attending the ERM course, M achieved the following mind-boggling results.
M accumulated almost half a million worth of stocks in his account with an internal rate of return of 10.45%.
About half of the portfolio is his equity, and the other half are borrowed funds from his broker.
But wait, there’s more. What’s interesting is that M’s wife, who is also a high flyer in the finance industry, has a larger portfolio based on the same set of stocks. This is a million dollars worth of stocks in a margin account after less than two years of accumulation!
Examining his portfolio in closer detail, we get the following results:
We can find the classic properties of an ERM portfolio here: a beta of around 0.8, indicating a risk lower than the rest of the market and almost half of all gains arising from dividend payouts.
M produced dividend payments of $22,182 over a short span of two years.
3 tips from a successful ERM graduate
During the lab session last week, M shared some tips on maximising the utility of the knowledge gained in the ERM program.
1 – Ignore market downturns
The fact of the matter is that M did not join ERM at the best of times. December 2019 was almost the market peak before the pandemic crash. If you had followed Batch 10, based on my records on Stocks café, you have lost up to 24% at the depths of the pandemic.
This would have been enough for many students to throw in the towel, declare the trainer a charlatan, and give up investing for good.
M explained that he did the opposite and tried to adapt my approach during the recession of 2009. He kept building up new portfolios and farmed his income into his margin account to buy more stocks.
Throughout this entire process, the Singapore stock market turned from being the worse stock market in Asia in 2020 into an outperformer in 2021.
2 – Have the courage to employ financial leverage
Another aspect of M’s approach was that he was a steadfast supporter of leverage, which is also highly unusual given that he endured the pandemic crash at ground zero.
M employed an equity multiplier of x2 throughout the pandemic crash. In other words, for every dollar that he and his wife has farmed into the portfolio, he borrowed one dollar more from his margin broker—doing this required “balls of iron”, as Batch 10 could have been down 24% at its lowest point. As M employed leverage, he would be nursing a loss of approximately 51% in March 2020.
So his current performance of 10.45% was closer to about (10.45% x 2 – 3%) or 17.9% assuming his margin financing costs of 3%.
3 – Maintain a high earning power
An astute observer would note that M is hardly an ordinary Singaporean from an earnings standpoint. As a family unit, M’s family earns easily within the top 10% bracket of taxpayers in Singapore.
Both he and his wife are successful PMETs in the finance industry. He shared that with their combined incomes, they could farm up to $30,000 into every portfolio published by the ERM program, and in the months when I did not conduct training, he would perform his screening and build his portfolio for a fresh injection of these funds.
When I asked M whether he made lifestyle adjustments to build the portfolio, he replied that he did not have to. Still, he said that switching employers once every 3 to 4 years helped increase portfolio growth rate quite drastically.
I get that most of us earn a more ‘average’ salary, I wasn’t even in the top 10% bracket when I was building my own ERM portfolio. That said, most ‘average’ folks like us can practically work towards owning our yacht.
Even without a yacht, M is a shining example for future ERM students
Finally, I would like to apologise to the reader who was expecting a picture of M’s yacht. He does not own one yet, but he did share that he actually intends to downgrade to living in a HDB in Singapore and build a palatial mansion in Thailand instead. For this alone, I’m cautiously optimistic that he would easily be able to afford a yacht one day.
M’s family is highly likely to will their first million dollars of net worth if they continue along this path. They manage their earnings very astutely, can save a generous portion of their profits, and has shown grit and determination to leverage an ERM portfolio even through the pandemic.
ERM is lucky to have someone like M on board. He is a brilliant showcase of what an actionable investment workshop can do for your life.
