If you want to honestly evaluate whether picking stocks individually is worth your effort and time adequately, you need to measure the performance of your stock portfolio. Otherwise, you can still enjoy the ‘game’ for its own sake…if you really enjoy the process.
I understand that some investors relish the process of searching for undervalued stocks and drilling deep into the financial statements of companies.
Still, it is important to understand the cost implications of the ‘fun’ you are having. Research indicates that the perception that investors have of their own performance has no correlation to the actual results. What you need to ask first is:
Did you beat the index returns?
If Singapore stocks are your preference, you need to benchmark your results against those of the Straits Times Index (STI). Unfortunately, many investors never track their results and are therefore not aware whether they are doing a good job of picking stocks. Do you know that 7.15% (as of Feb 2017) is the average annual returns of the STI ETF?
Here's our mistakes. Don't do the same.
We asked 14 Singapore finance bloggers to share what they would do if they could go back in time and invest their first $20,000. They can no longer rewind time, but you can learn from their experience and hopefully start with a better footing.
If you pick stocks and think that you are getting good results from your investments, you could be in for a rude shock if you were to actually measure your performance.
If your results are poorer than 7.15% per year, you are already incurring a great opportunity cost to compound your returns. You would have enjoyed better returns if you had simply invested in STI ETF. I hope this provides sufficient reason for you to start tracking your investment returns.
Start tracking your returns now:
Tracking Your Whole Investment Portfolio
Investors hardly ever own just one stock, and it is not uncommon to find investors owning anywhere from a few stocks to even hundreds. You need to track the stocks as your entire investment portfolio. You need to measure everything as a whole.
For instance, you may have investment capital amounting to $100k in the stock market and you have invested $10k in a particular stock.
The stock then goes on to perform incredibly well and you enjoy a 50% gain. You might be quite happy but did you manage to beat the market? The 50% gains amounts to only $5k, which represents about 5% of the entirety of your $100k investment portfolio. It is thus never about the returns of a handful of stocks. You should always track the returns on the entirety of your investment capital.
A portfolio generally gives you a properly organized and detailed view of your account. All the important information will be found there:
- What you have invested in
- How much your value is changing
- How much your investments are earning.
Individual statements will contain some of this information, and you can even make use of some online tools to help you analyze parts of your portfolio too. Ideally, it is important to have everything in a central place since it is just easier that way.