02 Feb2012

Reader “Dragon” from Australia left a comment in a previous post asking how the sample portfolio I published in October 2008, just after the financial markets had crashed and everyone was freaking out and calling an end to the global financial system, was doing today. I had not tracked it after 18 months, so I too, was curious. If you missed the history of this, you may wish to start with this first post, here, that outlined the hypothetical $200,000 investment, placed evenly in $20,000 blocks of stock in ten companies: Apple, Coca-Cola, Goldman Sachs, Boeing, CVS Drugstores, General Electric, PLDT, Amazon, Hershey’s and Microsoft. The first five stocks I picked, the last five selected by the Teen and Mrs. MM.

I did a follow-up post after a week, and the portfolio was up 6.9%, here. I then wrote another follow-up post, and after six months the portfolio was up 11%. It was a volatile time, and I don’t think the portfolio was always up, it may definitely have dipped into negative territory during that period. After a year, the portfolio was up a whopping 43%, spectacular by any measure, and had one actually purchased all those stocks, they would be in clover. I even suggested that a conservative person might cash out and just stick their money in safer securities if they prefered. But in case they were in it for the longer term, let’s see how it fared down the road… At the 18 month mark, when I last wrote about this, in April 2010, almost two years ago, the portfolio was up 68%! Wow, you say. That was a lucky call, a good streak, whatever. :) But now, 39 months later, in February 2012, after all the financial market turmoil, has it remained positive?

You’re darn right it has! Of the 10 original stocks, and assuming no buying and selling out of each stock (highly unusual and restrictive behavior), 9 out of 10 stocks went up, some like Apple, rising 5x in value. One stock, GE dropped ever so slightly. The bottom line? The hypothetical portfolio of $200,000 would now be worth roughly $420,000 (including substantial annual dividends), or a total return of 110% for 39 months, an average return of 34% year after year… Not too shabby, if I say so myself. But those kinds of opportunities only come once every twenty years or so. I only bought 2-3 stocks at the time, but one of them was Apple, and when it soared, I sold well before the current dizzying heights, but was more than content with the returns. So Dragon, thanks for asking. And yes, whilst this is merely a small sample, one can indeed make significantly more in stocks (or lose their hats) than in bonds or bank deposits. I am not encouraging any of you to risk their money in stock investments, just want to illustrate, and over time, how it could have fared. Wonderful that with this blog going on its 8th year, we can track things like this and long-time readers can see how things turn out. Now if you did do this, I WOULD definitely get out of the market now. :)

For the curious here are the purchase prices and current prices of the stocks (note, Apple and Amazon have no annual dividend payouts, but all the rest do, some as high as 5% plus):

Apple $88 to $456
Coca Cola $36 to $68
Goldman Sachs $90 to $113
Boeing $42 to $75
CVS $30 to $43
GE $19 to $18.8
PLDT $48 to $63
Amazon $56 to $179
Hershey’s $35 to $61
Microsoft $22 to $30

 

COMMENTS:

  1. PITS, MANILA says:

    WOW!

    Feb 2, 2012 | 11:42 am

     
  2. sophie says:

    wow, as in WOW!

    Feb 2, 2012 | 12:08 pm

     
  3. millet says:

    MM, you’re a genius!

    Feb 2, 2012 | 12:16 pm

     
  4. bakerwannabe says:

    MM, the bulk of the increase was in Apple. This was largely in part due to the sales of ipod, iphone and ipad. Mostly iphone, i think. But with Steve Job’ s demise (God rest his soul), do you think it will still be gang buster for Apple? You have a perfect mix portfolio. I wish I had known this since inception. Congratulations!

    Feb 2, 2012 | 12:50 pm

     
  5. Marketman says:

    bakerwannabe, yes, APPLE was outstanding indeed. But EVEN if you remove apple, then the original $180,000 investment would now be worth roughly $320,000 including dividends, or roughly 75% total return or roughly 23% average return per year, still spectacular, by most measures… And no, I don’t think APPLE can keep rising at that same velocity, but then again, I love their products and it’s fast becoming an APPLE world. Or it could fall from present heights with rapid ease…

    Feb 2, 2012 | 12:57 pm

     
  6. Skye says:

    I’m glad that I started investing although small time lang, buying only the minimum number of shares just so I would be able to get a grasp of how the market works (and of course yun lang kaya ko). Compared to your hypothetical investment, I’m already happy earning 300 pesos from 100 shares bought in mid-Nov at around P1,600 and sold end-Jan at P1,900.

    Feb 2, 2012 | 12:57 pm

     
  7. Marketman says:

    Skye, that’s a terrific return (over 80% annualized), you should be proud. Most investment advisers counsel folks to invest in stocks for the LONG TERM… so while the quick in and outs can be tempting… for best results in the long run, you may wish to consider your investments in terms of years… :)

    Feb 2, 2012 | 1:02 pm

     
  8. Skye says:

    Yes, I do have 3 stocks that I classify as long-term investment. I buy their stocks regularly regardless of price (this is what I learned when I joined a free training at CitisecOnline) and then I have 2 or 3 stocks that I buy and sell because it is exciting to earn that much in a short time.

    Feb 2, 2012 | 1:10 pm

     
  9. Marketman says:

    Skye, great that sounds like a good plan. Folks tend to start too late on their retirement plans, thinking they can’t save until they have big, bigger or biggest salaries… but it’s best to do slow and steady over time. :)

    As for most folks that don’t live in Western countries that have safety nets and forced savings measures at work, many Filipinos don’t realize how much they have to save to ensure a comfortable retirement. If you think your typical annual expenses WHEN you hit 65 are say PHP2.0 million, then you have to have say PHP25-30 million in cash or marketable securities at that point. I don’t count houses and other fixed assets to have a cushion (unless you have several prime properties and can easily sell them at that point). If you don’t have that buffer, you are at risk of not having enough funds/income to make it to your grave, assuming you last another 20 years or so… morbid thought, but probably pretty true. Most people spend 90% of their medical expenses in their last year of life. Personally, I would turn off the switch a year early and spend that money on the living.

    Feb 2, 2012 | 1:20 pm

     
  10. GM says:

    Wow, those are some pretty amazing returns! Now that Marketman’s started writing about food AND money, could you give some beginner advice about how to start investing?

    For a bit of background, I’m a twentysomething working in Manila who’s regularly saved 50% of my salary since I started working a few years ago, and I’d like to put the money currently sitting in my payroll account to better use. I used to have zero knowledge of financial terms, but have since started following some personal finance blogs to educate myself. However, most of them are geared towards a Western (American) audience…

    Thanks Marketman! :)

    Feb 2, 2012 | 2:04 pm

     
  11. JE says:

    Weren’t Goldman Sachs also part of the US financial crisis? Or am I mixing them up with Lehman Bros.? I was surprised to see their stock went up.

    Feb 2, 2012 | 3:11 pm

     
  12. Marketman says:

    JE, yes, Goldman escaped the worst effects of the crisis; in fact, in the few months after the stock was “bought”, it rose nearly 70+%, only to succumb to the harsh realities of the U.S. economy, whose problems were deeper than even they thought… GM, will respond to your question when I have more than a few minutes to think and write a response…

    Feb 2, 2012 | 3:23 pm

     
  13. Biy says:

    Dontya ever ever think that making money in the stock market is easy especially if newbie…the marketman just gave a sage advice.it takes time to save enough

    Feb 2, 2012 | 3:24 pm

     
  14. Gigi says:

    Hi MM, I remember searching for a recipe and came across your old post on the ROI of property, and the merits of rental vs buying (“I have seen the light”). Perhaps during the time of your analysis, it was a real estate slump. Or perhaps not. In any case, could you do an update on that? I think the price per sqm on Makati villages have increased a lot lately. Maybe I would be lucky enough to find a buyer like Manny Pacquaio — price is no object. Haha…..

    Feb 2, 2012 | 6:24 pm

     
  15. Marketman says:

    Gigi, yes, thanks for raising that. Those were different times, and prices have indeed risen in some top notch locations. But I still don’t buy that there is fundamental value underlying many of the soaring prices, and we are still renting as I write this, though maybe a purchase of a makati village lot a few years ago would have yielded decent short term returns…

    My logic remains the same, for one thing, too much easy money chasing properties that are way overpriced, in my opinion. Interest rates have remained low for one of the longest periods in modern history, therefore folks are buying thinking they won’t be hit with huge installment payments forever, which is not likely. And there is still so much land to build on, think the reclamation area for high rises, and all the suburban areas. So while makati villages may be the exception simply because there are so few lots and so many people wanting to buy them at this point (where is all that money coming from???), I don’t think they will yield anywhere near 20+% returns year after year. It boils down to this… to build a very good apartment high rise these days, I would guess developers spend say PHP45,000+ per square meter, but are asking some PHP120K a square meter retail. So IF the market crashes, the property should in theory crash back down closer to the fundamental cost or say PHP60-70K per square meter, a pretty steep correction. And if you go to the middle income cost apartments sprouting like mushrooms after a strong rain, those apartments made of hollow blocks and paint (I exaggerate) cost somewhere between what PHP25-30K per m2 and sell for a whopping PHP70-85K to first time and often neophyte buyers who commit to paying for the next 20-30 years, and OFTEN with increasing interest payments after the 3rd or 5th year. I would hate to see a crisis that raises interest rates dramatically and the inevitable defaults that would take place in that event.

    I think buying a house on a property in Manila or nearby is probably better than a cheaply made high-rise. If I could, buy in the best possible location. And LIVE in it and USE it, don’t buy it for speculation or hope that prices will rise. Alternatively put your money instead in fine art, well-run mutual funds, a beach or island… etc. But those are just personal musings, not based on any hard facts right now… more gut instinct than anything else. Land prices in major cities outside Manila are far more logical. If a retiree (there are many thinking and looking) wants to move back to Cebu, they can buy prime lots for between PHP12,000-15,000 per square meter as opposed to what, PHP70-90,000 in Makati? and build a perfectly nice house on it. And on a 2,000 meter lot, they could save the PHP100-120 million or so and live on the annual earnings from that nest egg.

    If you had PHP120 million to buy a run down Forbes park property, change it to roughly $2.8 million, and buy a spectacular property in Manhattan at a good address. Leverage it up if you like borrowing modest sums at say just 5% per annum interest rates. Then rent it out for say 8-10% of the property’s cost. There you might do reasonably well… So many Russians, South Americans and Asians all seeking a pied a terre there…

    Right now, our home in Makati yields less than 2% after taxes for our landlord… And its price, over say the last 50 years that they have held it, has risen just single digits percentage wise on a year to year basis, I think. Even if you narrow it down to the last ten years, from say 2001 to 2011, the prices have probably not even doubled or just doubled, meaning an 8% annual increase year on year…

    Oh and another point, since we are thinking hypothetical. If one had say PHP100 million in Sept 2008, when the global markets crashed and wealthy local people with international portfolios were freaking out, you would have been able to buy maybe two homes in Dasmarinas for PHP50m each. Today, you might be able to sell the same two smaller lot homes for a whopping PHP70m each. Less taxes, you would have maybe PHP130 million or a 30% return on three years, or an average return of 10% per annum (plus utility or rental income if you rented it out). But if you put your PHP100 million into the stock portfolio above, you would now have PHP200+ million, and be able to buy two homes in Dasmarinas, and have PHP60million in “change” left over (a little less due to taxes as well). :) Hypothetical, I know. And I might be off a bit on house prices, I haven’t been in the market for one… These comments are financially based, obviously. There are folks who for sentimental reasons, appearances, or otherwise, just must live in a home in these areas… and they are willing to pay the price.

    Feb 2, 2012 | 7:07 pm

     
  16. odie says:

    Sir, your first post back in October 2008 was one of the reason why i finally braved it out to invest in the stock market. I am happy to report that my portfolio gained by 35% in a year. Thank you for your very informative and encouraging posts :)

    Feb 2, 2012 | 8:10 pm

     
  17. Marketman says:

    odie, I am so happy for you! I think this is the point that I would say “balato naman o…” heeheehee. I am kidding. Just always wanted to say that. :)

    Feb 2, 2012 | 8:18 pm

     
  18. Nico says:

    Hey there,

    Been reading through comments and blogs. Marketman seems to be the smartest. :)

    I am from Baguio and we are in the process of putting up a small Indo-Malay resto. We have yet to look for a reliable supplier for spices for the dishes on the menu.

    Anybody with contacts, info or ant relevant info would really help.

    We’d be glad to be your servants when you come visit Baguio.

    Cheers!

    Nico

    Feb 2, 2012 | 9:06 pm

     
  19. Marketman says:

    Nico, I just responded to your private email. I presumed you were looking for dried spices…hence the suggestion of Flavors and Spices in Market! Market!. You should be able to get powdered turmeric, cloves, nutmeg, etc. there, key ingredients for Indonesian recipes. But fresh items are also critical, such as lemongrass (tanglad), galanggal, turmeric fresh, etc. and those can be found in many markets. You will have greater difficulty with candle nuts “kemiri” etc. And if you are serious, learn to make your own good sambals or chili pastes, as that is the crux of many an indonesian dish.

    Feb 2, 2012 | 9:12 pm

     
  20. nico says:

    Hey MM,

    Wow, that was quick! Thanks for the very prompt reply. I might be travelling down to Manila this weekend to check on these. Yup, I remember Market! Market! having those there. I’m just a bit skeptical if they make deliveries up far north. I might as well go there to find out.

    Thai resto joints are really popping up everwhere and competition is cut-throat . So hence the Indo-Malay idea.

    Thanks again MM.

    Feb 2, 2012 | 9:37 pm

     
  21. Faust says:

    MM you’ve could have invested in Google stocks…

    Feb 2, 2012 | 10:01 pm

     
  22. Tugashaligi says:

    Back in 2008 I invested in local stocks. I averaged a 78% year on year before cashing out in 2010 to buy shares in my dad’s company at a very good price. Buying that Benjamin Graham book was a good decision. And so was paying attention during my economics classes back in university. : )

    Feb 3, 2012 | 12:40 am

     
  23. Amarit says:

    To Sir Nico,

    You may also try Assad Mini Mart in U.N Avenue, in front of Unilever Philippines. This is a pakistani grocery store selling spices and other goods. Turmeric and other dry spices are plenty. I think they do deliver to other Indian/Pakistani stores up North. Manila branch phone number is (632) 5261349.

    There are 2 more stores beside it selling the same goods.

    I hope it helps.

    Feb 3, 2012 | 1:30 am

     
  24. RjAllcanseeya says:

    Amazing Analysis Very informative MM!! also lets not forget how the cost of Living Rises Up, By the time we are on Our Retirement Age Presumably, im in my 20’s. Our Savings, Pensions, 401k’s Included. May not be Enough to Keep up with our Daily Expenses Specially if we have Medical Bills, medicines Etc. hence we tend to work pass the Retirement age.

    Feb 3, 2012 | 3:37 am

     
  25. Ted says:

    It’s really hard to predict when the Market is going up or when it will crash. But if you invest your money in a more diversified way like mutual funds then it’s much safer and you don’t have to worry about the ups and downs of the market. Before investing, do your research and if you don’t like to take too much risks, put your money in index funds. Below is a summary of a friend’s Mutual fund portfolio, the money was put in a mix of index funds (Total Stock, International Stocks, and Total Bond funds) with monthly purchases of about 10% of income (always pay yourself first) between those 3 funds.

    Activity summary
    Total value as of 01/31/2007 $126,106.27
    Purchases $44,772.38
    Investment return $11,929.42
    Total value as of 02/01/2012 $182,808.07

    Activity summary
    Total value as of 01/31/2009 $86,275.96
    Purchases $26,056.63
    Investment return $70,475.48
    Total value as of 02/01/2012 $182,808.07

    So depending on which time frame you do your analysis on the portfolio, it would still average out to about 8% a year which is the norm. So the rule to follow should be, to invest only what you can afford but do it religiously, you don’t need a big amount to invest, you can start small, all you have to do is meet the minimum investment amount (you can do that by saving the money first and once you meet the minimum start investing in the fund). Stop watching it’s ups and downs daily or you will just get frustrated. Lastly, don’t chase after the market, don’t sell when it’s down or buy when it’s up,,,which most investors do.

    Feb 3, 2012 | 4:31 am

     
  26. KUMAGCOW says:

    These all look Chinese to me, I wonder if there are stockmarkets for dummies book somewhere

    Feb 3, 2012 | 5:16 am

     
  27. psychomom says:

    thanks for the update. i have been teaching my son (who is now 11) the value of saving, spending and giving to charity from his weekly allowance. maybe we can venture into investments for his future instead of just keeping his savings in jars……

    Feb 3, 2012 | 5:29 am

     
  28. Thel from Florida says:

    In 1996 I bought some brk.b (Berkshire Hathaway) for $47K. By 2007 it was worth $160K but nowadays it’s only hovering at $120K. Will just leave it there for now, I’m sure it will go up again. In 2005, I’m so LUCKY to locked up a $100K jumbo CD for 4.83% for ten years. A nice $5K+ interest income every year and more than enough to buy a set of Pratesi beddings.

    Feb 3, 2012 | 6:14 am

     
  29. zaN says:

    I just googled : What if you purchased $1,000 of Apple stock in 2001?

    http://www.warrenschooltech.org/archives/89

    Result: 90K+

    WOW… IF only we can predict the future of even just ONE stock would do years from now.

    Feb 3, 2012 | 9:30 am

     
  30. Lei says:

    MM, I have you to thank for giving clear and concise explanation on the merits of investing in the stocks. Being a regular reader way back from late 2005, I know that you really meant good in sharing your experience in the subject matter. I took the plunge way back in 2010, just before the May presidential elections. I entered the stock market indirectly thru the UITF being offered by local banks with the choice of investing all the amount in the stock market. You can choose to invest in bonds if you so like. At present, those entered in 2010 have these figures, a profit of 52.82% from may 2010, 42.21% july 2010, and 39.26 coming from aug 2010. I religiously track each using the free portfolio tracker from bloomberg.com. =)

    I am a clear and true testament that an ordinary individual with no background(academic or work acquired) in the finance sector can do make money out of investing. It sure beats the rate being offered by time deposits. Oh, btw, just an added info, I found out that I was nominated for our company’s internal club in the position of director for financial wellness! whoah! even though it is just a nomination, i was dumbfounded and i realized that i must be really doing something good with my finances for the rest to notice. i emailed you privately the name of my company, but for the rest, it is in the top 10 global company. so that is a great acknowledgment indeed! and MM is one of my mentor in that area. =)

    hope you can continue sharing your knowledge on how to best save & invest!!! again, thanks MM!

    Feb 3, 2012 | 10:24 am

     
  31. Gerry says:

    I think that the local stock market is riddled with insider trading problems. The DBP-Philex-Ongpin deal, backdoor listing rumors that crop up every so often, and just today the dubious SSS sale of its Meralco share. It seems that there are no controls in the local markets and there are so many abuses. Remember the BW scam? Nobody seemed to have been punished for that debacle. I see that your portfolio is 90% foreign which is not a ringing endorsement of the local market.

    Feb 3, 2012 | 4:16 pm

     
  32. Marketman says:

    Gerry, you are right, I haven’t been fond of many local stocks, as I feel even large family owned companies are not really run for their public stockholders… but there are a few I would buy and/or have in the past, bought — Ayala, Aboitiz, The Gokongwei Group of Companies, PLDT, among others. But the recent 2-3? year run-up in local stocks is something I essentially did not ride upwards…

    Feb 3, 2012 | 4:28 pm

     
  33. Mari says:

    MM, I’m a nurse and quite interested to start investing but just don’t know where to begin. I know you are a busy man but could you please point me where to start in all of these? I’m just plain clueless but very interested. Thank you very much.

    Feb 4, 2012 | 9:58 am

     
  34. 100kpinoy says:

    was it really hypothetical portfolio trade? i have a feeling this is true… if so, nice moves!!

    this is one of the reason the rich gets richer… putting their spare cash into investing rather than into savings account that gains less than inflationary costs, not to mention time+opportunity loss.

    i am one of those who wish to elevate financial literacy and achieve financial freedom… as of now, taking it one step at a time.

    nice article and thanks for sharing ;)

    Feb 11, 2012 | 8:09 pm

     
 

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