Personal Notes on The First Bagger

I have played on two worlds for quite some time. Blurred boundaries between speculating and calculated investing. I know, that’s not healthy. After a few bumpy years in the market, I finally experience a bagger, a 100% return. Full disclosure, it's still small. I decided to write this notes because it's the first less-dependent bagger that I encounter. I got the pieces of the puzzle from here and there, so I don't think it's fully independent too. But, some personal analysis and thinking play a big role this time. I hope it can be helpful for me to keep learning and growing.

In hindsight, another blessing from the pandemic and my unemployment is that I got more time to think and to learn. Last year, I tried to learn o do things right. Tried to do the hard work related to investing. I tried to be less dependent on what CNBC or the so-called stock-fluencers said.

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Being Modest

I am lucky that I was still able to be quite calm during my unemployment. I can learn to learn and stay curious. I guess there goes my first lesson, being modest enough will help us someday. Who would have thought that there will be a pandemic that force the world to take a pause? I am not the most modest person in my circle. But I have learned from personal experience that it’s better to have some emergency fund for the unexpected times.

I took sometime to learn “to fish”. Mainly from other great thinkers like Ko Chris Angkasa, investabook, and Pak Doddy Prayogo; who are kind and brave enough to share their voice in this noisy world wide web. They really inspire people to fish instead of feed people directly with the fish. I guess the wisdom about teach people to fish is true.

If you give a man a fish, you have fed him for a day, but if you teach him to fish, you have fed him for a lifetime.

Recently, I also read some words by Edward Thorp, the author of the book Beat The Dealer. In his discussion with Tim Ferris, Thorp said:

If you really are interested in investing, it’s worth educating yourself ... you’ll learn about how the world works and a lot about life too.

You learn from what seems like a narrow, specialized field if you can take a lesson in one part of life and transport it to another.

What Edward Thorp said sounds very true after I try to learn more about the business instead of market price. If you are exposed to the news about stock market during the pandemic (especially in 2020-2021), you may aware how erratic the market was. It’s probably still volatile by the time I write and publish this notes.

As I grew up as a small part in the energy industry, my curiosity leads me to take a deeper look. The energy industry is commonly known as cyclical industry. We've seen how the price plummeted in 2020. The future market even seen the negative price, probably the first time in human history.

I try to dig deeper on the energy value chain. I try to ask various questions.

How is energy consumed in this world? How is energy produced?

How is energy transferred from the sources (whatever kind of sources) to the very end of the user, the common people?

Which part of the people I am? Am I part of the people that usually whine when the electricity goes off so I can’t have wi-fi and Air Conditioner (AC)?

Where is most of my electricity coming from?

Why certain energy sources are labelled dirty? What are the alternatives?

Which type of energy sources is currently needed by most people?

Within 2020-2021, we can see most of people run away from the dirty ones.

The more questions I try to answer, the more I learn that I am not the center of the world. Therefore, I know that I need to learn how the world works.

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Build Deeper Understanding

With deeper understanding, I started to build conviction on certain opportunity. However, in 2021, my personal portfolio is far from good either. Again, I am lucky that I didn’t do any panic selling. But, here comes my second lesson. The less we understand, the more we diworsify. Diworsify is a slang, it is diversification into the worse things. With my minimal understanding about myself in the past, I took the advice don’t put all your eggs in the same basket as it is. There are time where I hold more than seven companies from different segments in my portfolio, just for the sake of diversification. I learned the hard way that what I did was diworsification. I don't say that diversification is bad. These days, the more I learn, it seems diversification should be approached differently to different people. Diversification for big-fund investment manager will be different for retail investor like me. The idea was simple, I should get better return with more money invested in certain company. I learn that with minimal understanding of the business, I decided to put less than 20% of most companies that I hold. With that small part, even though the return can be big, the effect to the whole portfolio will not be big enough as well.

I am still lucky that in 2021 when the market start picking up, I actually able to start to trim my portfolio to focus on the business that I can learn and I can understand. This is still an ongoing process because the more I learn, the more I don’t know.

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Build Our Own Conviction

With all the learning and insights, the important part of investment is conviction. I finally experience for myself that knowledge can be transferred, but not conviction. Even though we are already in the better circle to support our learning, or even we pay for the knowledge or the stock-picks, we will not get the same conviction. It’s also not easy to define a conviction. If you like further read, this essay about conviction by Sleepwell is probably the best.

A differentiated opinion on a company’s long term prospects, with a high level of confidence,

achieved after gaining the required knowledge while becoming comfortable with the risks and aware of the consensus view. - Sleepwell

The conviction will be build inside our mind once we have better understanding of the business. But, again, as I understand that I am not the center of the world, I know that I might be wrong. If I got things wrong, am I comfortable with the risk? Will I still be able to sleep well (pun intended)?

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Stay Calm

Thus, the next lesson for me is to stay calm, whether the market is in or not it our favor. This is another hard part because human is an emotional being. We are easily get surprised, sad, or overly-excited of things. Especially for things we don’t expect. It’s also true that being able to invest better is to be able to manage our emotion better. Even though it’s not easy, it’s better to stay calm. There are more things to worry about now. Even though we’re right in certain conviction, there must be a consequences. In hindsight, it’s easy to see that the world still need certain natural resources to keep the world turning, to keep the lights on in all houses, to keep the house warm in the areas experiencing winter, and to keep the AC on in humid-and-tropical areas. However, the soaring raw material and commodity prices play the part to the increasing inflation as well.

Source: Energypost.eu

Should I be overjoyed with the current high prices of commodities? I don’t think I should.

That kind of situation is described best in one scene in the movie The Big Short (2015) where Ben Rickert told the young and naive Jamie Shipley and Charlie Geller not to dance after their big bet against American economy.

If we're right, people lose homes. People lose jobs. People lose retirement savings, people lose pensions.

You know what I hate about f***ing banking? It reduces people to numbers. Here's a number - every 1% unemployment goes up, 40,000 people die, did you know that? - Ben Rickert

I guess I am writing this notes as a way to not dance.

Other than that, this first bagger is also still a small part of my net worth. And this bagger is temporary. So, it’s better to stay humble and onto the next lesson because the needle haven’t move much. But, at least, it’s a little proof that hard work do pays off.

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Keep Learning

For the last and ultimate lesson from this lengthy notes, is to keep learning. Again, I am lucky enough to meet some resources to learn to get dirty (doing the hard work, digging financial records, digging business value chain, scuttlebutting, and so on) but also to learn to be wiser. It seems the best thing to improve right now is still to be good at our job, wherever we are assigned to.

As Warren Buffet once said, the best protection is our own earning power, whether the currency is in seashells or paper money.

In my free time, hopefully I can still continue to strengthen and expand my circle of competence. To get my hands dirty and dig for more opportunities are out there and share what I learn along the way.

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How about you?

I hope your portfolio is doing well, if not, at least it gives you a valuable intangible lessons.