Investing is a beautiful intellectual game. In today’s article, I’ll share a personal story (which feels a bit uncomfortable). It’s about the best investment I ever made and what you can learn from it.
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.
Regarding your question: I think you are completely right. As Warren Buffett beautifully summarized it: "Interest rates are to asset prices, you know, sort of like gravity is to the apple.”
This means that when interest rates are decreasing, higher valuations are justified and the other way around. In today's context, interest rates are increasing and as a result valuations should decrease.
The past decade has been very good for stocks, especially for quality stocks. To give you an indication: on the 1st of October I'll start sharing my investable universe as well as my portfolio. Since 2010, the current portfolio returned more than 20% per year.
Due to the fact that valuations are quite high and interest rates are increasing, I can guarantee you that over the next 13 years my portfolio won't return more than 20% per year. The same goes for the S&P500: the S&P500 won't return 12% per year over the next decade just as it did over the last decade.
So things will get a bit tougher. However, this doesn't mean that you shouldn't invest or that you should try to time the market. Stocks will (probably) still be the best investment over the next decade.
Here's what I am expecting for the next decade as a rule of thumb:
- Yearly return S&P500: 5-8% per year
- Yearly return of my portfolio: 10-13% per year
Why do I expect my portfolio to outperform? Because the companies in my portfolio are fundamentally better companies with a better growth outlook which trade at roughly the same valuation level of the index.
Thank you for answering my query with your expected return performance of both your portfolio and the S&P 500 along with your detailed response on the impact of a probable higher interest scenario.
It is good news for us that you will start sharing your investable universe along with your portfolio. There would a lot to learn from that. So very happy.
Thank you for sharing your beautiful story with us.
A great writer (teacher) doesn't just teach, he/she inspires too. In my opinion, the first step of achieving something is "seeing" the result in your head. You know-just like the saying: "If you can see it in your mind, you can hold it in your hand."
This is why personal stories are great, and I (and likely other readers) would love to read more of yours in the future.
Now I make 4.30% on my money at Discover Bank. On the average overall if you will does the stock market pay in percenages.........? - This for "Compoinding Quality" Thank you for your work here and in your writings.
I will copy a reaction from another question on this post here. The question was whether increasing interest rates might hurt future returns for investors:
I think you are completely right. As Warren Buffett beautifully summarized it: "Interest rates are to asset prices, you know, sort of like gravity is to the apple.”
This means that when interest rates are decreasing, higher valuations are justified and the other way around. In today's context, interest rates are increasing and as a result valuations should decrease.
The past decade has been very good for stocks, especially for quality stocks. To give you an indication: on the 1st of October I'll start sharing my investable universe as well as my portfolio. Since 2010, the current portfolio returned more than 20% per year.
Due to the fact that valuations are quite high and interest rates are increasing, I can guarantee you that over the next 13 years my portfolio won't return more than 20% per year. The same goes for the S&P500: the S&P500 won't return 12% per year over the next decade just as it did over the last decade.
So things will get a bit tougher. However, this doesn't mean that you shouldn't invest or that you should try to time the market. Stocks will (probably) still be the best investment over the next decade.
Here's what I am expecting for the next decade as a rule of thumb:
- Yearly return S&P500: 5-8% per year
- Yearly return of my portfolio: 10-13% per year
Why do I expect my portfolio to outperform? Because the companies in my portfolio are fundamentally better companies with a better growth outlook which trade at roughly the same valuation level of the index.
you listend to podcast at the age of 14? How old are you? The story telling method is okay, but tbh. I am overwhelmed by story telling method. To much for me
Thank you for your feedback, Ben and Mindfullinestments!
Back in the days there were no podcasts indeed. For that sentence, you can replace podcasts with TV Shows. I used to download a lot of Youtube videos too and listened to them while sporting, commuting, ...
The key focus will be on general investment knowledge. Sporadically, I might add a personal story when I think great lessons can be learned from it. :)
Great post. I had a similar experience during the bear market in '22. All the overvalued, unprofitable tech companies I'd bought because I listened to certain investing services were getting demolished. I watched my portfolio drop nearly 50%. Day after day, month after month, nothing but red. It was brutal. I nearly gave up. But after a few months of feeling sorry for myself (and thinking about anything else other than investing), I decided to double down, and then I doubled down again, determined to learn from my mistakes. I subscribed to your newsletter, re-read Peter Lynch with fresh eyes (amongst many other books, newsletters, and podcasts), and now realise that last year's brutal market was one of the best things that's happened in my short investing career. I can honestly say I'm a much better investor as a result — more humble, discerning, patient, and knowledgeable. Plus my skin is much thicker. There's no better teacher than failure!
Such a great article. As usual!Appreciate you getting personal with your story. I’m sure everyone else does as well. You did a great. Definitely keep the personal stories coming!!
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.
Thank you very much, Rajat!
Regarding your question: I think you are completely right. As Warren Buffett beautifully summarized it: "Interest rates are to asset prices, you know, sort of like gravity is to the apple.”
This means that when interest rates are decreasing, higher valuations are justified and the other way around. In today's context, interest rates are increasing and as a result valuations should decrease.
The past decade has been very good for stocks, especially for quality stocks. To give you an indication: on the 1st of October I'll start sharing my investable universe as well as my portfolio. Since 2010, the current portfolio returned more than 20% per year.
Due to the fact that valuations are quite high and interest rates are increasing, I can guarantee you that over the next 13 years my portfolio won't return more than 20% per year. The same goes for the S&P500: the S&P500 won't return 12% per year over the next decade just as it did over the last decade.
So things will get a bit tougher. However, this doesn't mean that you shouldn't invest or that you should try to time the market. Stocks will (probably) still be the best investment over the next decade.
Here's what I am expecting for the next decade as a rule of thumb:
- Yearly return S&P500: 5-8% per year
- Yearly return of my portfolio: 10-13% per year
Why do I expect my portfolio to outperform? Because the companies in my portfolio are fundamentally better companies with a better growth outlook which trade at roughly the same valuation level of the index.
Thank you for answering my query with your expected return performance of both your portfolio and the S&P 500 along with your detailed response on the impact of a probable higher interest scenario.
It is good news for us that you will start sharing your investable universe along with your portfolio. There would a lot to learn from that. So very happy.
The honor is all mine, Rajat! Have a lovely day.
Just WoW....
Thank you, Kartikey!
Takes a ton of courage to open yourself up in front of all of us. Love the info. you provide. Keep it coming...but don’t burn yourself out.
Thank you very much, Joey!
I won't burn myself out. I really love to write for and help people like you!
CQ,
Thank you for sharing your beautiful story with us.
A great writer (teacher) doesn't just teach, he/she inspires too. In my opinion, the first step of achieving something is "seeing" the result in your head. You know-just like the saying: "If you can see it in your mind, you can hold it in your hand."
This is why personal stories are great, and I (and likely other readers) would love to read more of yours in the future.
Best Regards!
Thank you for your feedback, Pavel!
I 100% agree with this.
Aim for the moon. Even if you miss, you'll end among the stars. :)
Very poetically worded, my friend! ☺️
Best article so far.
Thank you, Shifat!
Stay tuned as the best is yet to come!
Now I make 4.30% on my money at Discover Bank. On the average overall if you will does the stock market pay in percenages.........? - This for "Compoinding Quality" Thank you for your work here and in your writings.
Hi sir,
I will copy a reaction from another question on this post here. The question was whether increasing interest rates might hurt future returns for investors:
I think you are completely right. As Warren Buffett beautifully summarized it: "Interest rates are to asset prices, you know, sort of like gravity is to the apple.”
This means that when interest rates are decreasing, higher valuations are justified and the other way around. In today's context, interest rates are increasing and as a result valuations should decrease.
The past decade has been very good for stocks, especially for quality stocks. To give you an indication: on the 1st of October I'll start sharing my investable universe as well as my portfolio. Since 2010, the current portfolio returned more than 20% per year.
Due to the fact that valuations are quite high and interest rates are increasing, I can guarantee you that over the next 13 years my portfolio won't return more than 20% per year. The same goes for the S&P500: the S&P500 won't return 12% per year over the next decade just as it did over the last decade.
So things will get a bit tougher. However, this doesn't mean that you shouldn't invest or that you should try to time the market. Stocks will (probably) still be the best investment over the next decade.
Here's what I am expecting for the next decade as a rule of thumb:
- Yearly return S&P500: 5-8% per year
- Yearly return of my portfolio: 10-13% per year
Why do I expect my portfolio to outperform? Because the companies in my portfolio are fundamentally better companies with a better growth outlook which trade at roughly the same valuation level of the index.
This article was Quality.
You as a reader = Quality!
I absolutely love your newsletter and I get such incredible value and
knowledge from it. Thanks so much for sharing
Thank YOU for being such a loyal reader, Mark.
The best is yet to come!
you listend to podcast at the age of 14? How old are you? The story telling method is okay, but tbh. I am overwhelmed by story telling method. To much for me
Podcast or not, called it radio or TV show if you will, it remains that @compoundingquality has shared tons of precious materials
Oh, I do not doub that. I like him. I follow him. I am subscriber.
But at the end he asked "do you want more personal stories".
That was so to say my personal feedback ;) . Do not take it personal. Story telling is just so yesterday ;) .
This is not a statement about his/her other posts.
Thank you for your feedback, Ben and Mindfullinestments!
Back in the days there were no podcasts indeed. For that sentence, you can replace podcasts with TV Shows. I used to download a lot of Youtube videos too and listened to them while sporting, commuting, ...
The key focus will be on general investment knowledge. Sporadically, I might add a personal story when I think great lessons can be learned from it. :)
Great one ! Thank you !
It felt a bit uncomfortable to share this with almost 90,000 people. So thank you for this! And thank you for being such a loyal reader.
Thank you so much for your generosity, sharing all this info is such a great gift for those who have found you❤️
Its an honor, Bea!
The greatest gift I can ask you for is to share this with friends and family.
Great post. I had a similar experience during the bear market in '22. All the overvalued, unprofitable tech companies I'd bought because I listened to certain investing services were getting demolished. I watched my portfolio drop nearly 50%. Day after day, month after month, nothing but red. It was brutal. I nearly gave up. But after a few months of feeling sorry for myself (and thinking about anything else other than investing), I decided to double down, and then I doubled down again, determined to learn from my mistakes. I subscribed to your newsletter, re-read Peter Lynch with fresh eyes (amongst many other books, newsletters, and podcasts), and now realise that last year's brutal market was one of the best things that's happened in my short investing career. I can honestly say I'm a much better investor as a result — more humble, discerning, patient, and knowledgeable. Plus my skin is much thicker. There's no better teacher than failure!
That's a wonderful story, Chandler!
With a great mindset like that, I am sure you will do great. Let's ride this journey together!
Thank you! Let's do it :)
Inspiring to read about your personal story CQ. Thanks for sharing!
It's an honor, Warren!
PS I like your name. :)
🤓
Such a great article. As usual!Appreciate you getting personal with your story. I’m sure everyone else does as well. You did a great. Definitely keep the personal stories coming!!
Thank you, Vinny!
You know where to find me if you have other suggestions to write an article about. :)
Thanks for the story! But... Could you show yourself?
Dear Bohdan,
At this point in time I can't yet as I am still working in the industry. However, I will be able to show myself in a few months from now.
Kind regards,
QC