👑 My best investment ever
Investing is a beautiful intellectual game.
In today’s article, I’ll share a personal story for the first time ever. It feels a bit uncomfortable for me to do this, but I truly hope that you appreciate this openness.
It’s about the best investment I ever made and what you can learn from this.
How it all started
I’ve always been interested in stocks. I never liked to spend money and saved as much as I possibly could when I was young.
As a kid, I used to do vacation work like restocking store shelves and sorting candy on an assembly line in a local factory (confession: I ate some candy too).
While I have a lot of respect for the people who do these jobs, I never really liked it. To be completely honest with you, I absolutely detested it.
But things changed soon.
When I was 13 years old, on a nice summer evening, someone told me about the stock market. Say what?! You could actually make money without having to work for it?
This was one of the most beautiful things I had ever heard. I remember the conversation as yesterday as it sparked a light in me. My passion for investing was born on that summer evening.
My best investment ever
The day after the conversation, I set up a brokerage account (via my parents as you aren’t allowed to invest in stocks under age 18).
After a few days, the account was set up and I transferred the hard-earned money I earned that summer to my brokerage account.
But there was only one small problem…
… In which stock should I invest? I didn’t know anything about stocks.
‘Luckily’ the broker I used had a top pick list and they recently added a new company to this list. It was a local company active in the production, storage, supply and transportation of oil and gas.
The people who managed the top pick list were so-called experts.
They should know what they were doing right?
So I blindly followed them and bought that specific company with all the money I earned that summer.
After 1 year I sold the stock…
… with a loss of 60%.
And you know what? It’s the best investment I’ve ever made.
My worst investment ever has become my best investment ever and you’ll soon find out why.
Educate yourself
After selling my first investment (which was very painful), I could beat myself up.
How could I be so stupid?
When something like this happens to you, you can do two things:
You conclude investing isn’t something for you and you give up
You promise yourself to never make the same mistake again and educate yourself
I decided to choose the latter.
From that point in time, I became completely obsessed with the stock market.
Starting from age 14, I did the following:
Read all financial newspapers every morning
Read at least 1 finance/investing book every 1-2 weeks
Listen to podcasts for about 10 hours per week
My ex-girlfriend once said to me that I loved the stock market and books more than I loved her. She was probably right as we broke up a few months later.
What you can learn from this?
Making many investment mistakes at the beginning of your investment journey is probably the best thing that can happen to you.
It’s way better to make a mistake with $1,000 than making a mistake with $100,000.
Failures are part of life. If you’ve never failed, you’ve probably never tried anything new.
The life of optimistic investors is beautiful in that sense. If you make a good investment decision, you make money and if you make bad decision, you’ll learn something new.
As Thomas Edison beautifully said: “I have not failed. I’ve just found 10,000 ways that won’t work.”
Lessons learned
While it’s good to learn from your own mistakes, it’s even better to learn from other people’s mistakes.
You don’t need to pee on an electric fence yourself to know that it’s a stupid idea.
Here are some things I learned from my first investment:
Diversify
This is especially important when you don’t have much investment experience.
When you are new to the investment world, don’t invest all your money in one stock like I did.
Always invest across different geographies and industries.
Owning 15-25 stocks is a good rule of thumb.
Make your own homework
You can borrow someone’s idea, but you can’t borrow their conviction.
Every investor is unique and has its own financial goals. Invest accordingly.
Be aware of the fact that Wall Street has its own commercial agenda.
Most professional investors underperform the market.
As Charlie Munger once said: “Show me the incentive and I’ll show you the outcome.”
Focus on great companies
The first stock I ever bought was a cyclical company active in oil and gas.
Cyclical companies are very hard to invest in as your timing needs to be exactly right. Instead, focus on buying great companies at a fair price.
Great companies are characterized as follows:
Sustainable competitive advantage
Integer management (skin in the game)
Low capital intensity
Great capital allocation
High profitability
Active in a secular trend
You can find the core of my investment philosophy here: My Quality Investment Philosophy.
Investing is a beautiful intellectual game
Investing is a beautiful intellectual game.
There never is a boring day and you become wiser every single day.
Just like wealth, knowledge compounds too.
That’s also why you should read as much as you possible can.
Read about various topics: finance, philosophy, relationships, health, …
“Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day.” - Charlie Munger
I insist on a lot of time being spent, almost every day, to just sit and think. That is very uncommon in American business. I read and think. So I do more reading and thinking, and make less impulse decisions than most people in business.” - Warren Buffett
The end
This was the first article I ever wrote with a personal story.
Would you like more personal investment stories in the future?
This newsletter is the result of my passion for the stock market.
Running this newsletter while still working full time as a Fund Manager means that I am working roughly 60-70 hours per week.
If you liked this, it would be an honor if you could share it with friends, colleagues and family.
About the author
Compounding Quality is a professional investor which manages a worldwide equity fund with more than $150 million in Assets Under Management. I’ve read over 500 investment books and spend more than 50 hours per week researching stocks.
Thank you, so much. I have started reading your blog almost religiously in the recent past. Now, I have become your big fan. I share your posts with a lot of friends, colleagues and also on social media. Now, I have a question.
Can you throw some light on this aspect? Lots of astute investors have made huge money over the last 30 years; do you agree that their performance had been ably assisted by a the 40-year old (since 1981) downtrend in interest rates pushing it to almost zero? Please don't get me wrong, I am not belittling anybody's performance, I am just trying to gauge how much extra effort and/or extra time would be needed in a rising interest rate scenario. Yes, one thing I believe is that interest rates would not go down that much again anytime soon. Even if it does, central banks pumping in another $25 trillion, like they did between 2014 and 2021 (out of that $9 trillion between 2020 and 2021) again, is unlikely to happen for since a large part of those assets creating money still remain in their books making it quite difficult for another round of humongous QE. I am trying to understand what kind of headwind we would have to face notwithstanding great fund managers and quality compounder companies. Please share your views.
Just WoW....