Six Figures!

Andreas Levers: Hangar 6

Wow, it's been a long time since I last updated the blog. During the Spring I was a bit overwhelmed with my work load at the hamster wheel and also experienced a little bit of a writer's block. Being a procrastinator, starting writing or anything is always a small hurdle for me.

Since my last postback in January my portfolio has made a new record number. Six Figures! Let me say that again: SIX FIGURES! It now takes six beautiful numbers to write the number of euros in my portfolio. Here's the details:

	06.01.17	10.05.17	change
Savings account	7575	7596	+21
Passive funds, broad	30172	33599	+3427
Passive funds, niches	9734	11330	+1596
Actively managed funds	6603	7499	+896
Listed stocks	24930	32872	+7942
Unlisted stocks	5250	5250	0
Fixed income	100	100	0
Cash	6012	4093	-1919
Total	90376	102337	+11961

I think some reflexion is suitable here. My savings and investment practice started 2011 when I started a ”real job” with a proper steady salary. I just simply kept my standard of living at the same level without adding more consumption.

Since then, about six and a half years have passed, and my portfolio has grown from essentially zero to six figures. During these years I've saved about a 1000 euros per month, altogether around 75 thousand euros. The remaining 25 grand has been generated my being in the market, mostly as capital gains and some as dividends also (about 20k and 5k, respectively). The stats on the previous years look something like this:

year	savings	cum. savings	gains	cum. gains	portfolio value
2010	35	995			1 000
2011	9 936	10 931	-1 017	-1 017	9 919
2012	12 234	23 165	2 508	1 491	24 661
2013	2 424	25 589	2 067	3 558	29 152
2014	12 702	38 291	6 012	9 570	47 866
2015	12 167	50 458	3 786	13 356	63 819
2016	16 128	66 586	9 242	22 598	89 189
2017, until May	8 319	74 905	4 842	27 440	102 350

Year 2013 stands out as a year of less savings but that isn't the real picture as that year I bought my apartment and thus couldn't contribute to my portfolio but did pay approximate 10 thousand as the down payment.

Going forward I hope to be writing more often. BR, Jukka.

Last stop before the big one

Little league 11 by Frank Pierson

90k! What? Already? Yes, just 2 months after making 80k, I've gained my next 10k to 90k. That was super quick – I hadn't expected to make 90k so soon.

A big part this 10k was generated by the market. Since the 80k in November, I've made contributions of around 4 400 euros and the market has returned around 6 800 euros. Thank you Mr Market!

...or should that be Mr Trump? The last 2 months' ”trump rally” has been great for the portfolio. It only took 57 days to go from 80k to 90k!

Here's my portfolio breakdown as of 6th of January 2017 (actually the first 90k was on the 3rd but I didn't record my portfolio breakdown then):

	10.11.16	06.01.17	change
Savings account	5043	7575	+2532
Passive funds, broad	26698	30172	+3474
Passive funds, niches	8411	9734	+1323
Actively managed funds	6579	6603	+24
Listed stocks	24954	24930	-24
Unlisted stocks	5250	5250	0
Fixed income	100	100	0
Cash	4258	6012	+1754
Total	81293	90376	+9083

I don't think it is realistic or probably to think that I'd make the next 10k, 6 figures, so soon. Actually my guess is for the markets to remain rather flat for the next year, or possibly correct down. Schiller CAPE is currently over 28.

Year 2016 in review

What a year this has been once again, what a year! A lot has happened in world politics and my personal life. At the same time the markets have gained some more and been, in my opinion, overall less dramatic than I would have expected.

Savings

This chart shows my 2016 portfolio value changes. That bump on the last day is a contribution of 2 500 euros to my savings account I made on the last day of the year. This money is going to be put to work in a more efficient manner once I decide the place.

Portfolio valuation and savings. The blue line is the value of my portfolio and the red line is cost of the portfolio.

Let's look at the numbers for my portfolio cost and value in more detail in a table:

	31.12.2015	30.12.2016	change
cost (= savings)	50 458 euro	66 585 euro	+16 127 euro
value	63 820 euro	89 189 euro	+25 369 euro

Woot? So, during 2016 I managed to save an astonishing 16 127 euros (2015 was 12 167 euros). I am really happy with that number. That's about 1 344 euros (1014) per month.

During the year, my net income was about 37 600 euros so my savings rate was a very nice 43% (last year was only 33%). Where exactly the extra savings came from I'm not really sure, probably less upkeep on the apartment, but I didn't really skimp on anything, just lived life as before.

Growth

But I'm even more happy with the next number, the value of my portfolio is up 25 369 euros during the year. That means that the market produced about 9 242 euros or about +12% in gains for me. This is super sweet and the biggest gain in terms of euros I've ever made!



The below chart shows the TWR return calculation (in green, left scale) and the EUR/USD (in burgundy, right scale) currency rate. The TWR was down more than 10% in February but crossed over to the positive side during the summer and made most of it's gains in the last two months (thanks Mr Trump, I guess...). My portfolio is quite heavily weighted towards dollar nominated stuff so there's a definite correlation with the EUR/USD exchange rate as seen below.

TWR return calculation (in green, left scale) and the EUR/USD (in burgundy, right scale) currency rate.

Mortgage and net worth

During 2016 I also paid off 4815 euros of my mortgage. There's still plenty left. As the euribor rates are super low at the moment, I don't see any reason to contribute more than minimum to mortgage for the time being.


I can't tell yet if this will be considered an investment or not but if were an investment, my total contributions to my net worth would be 20 942 euros or about 56% (2015 was 46%) of my net income.

My net worth was up during the year about 27 500 euros to roughly 108 500 euros but I don't really track my net worth. I'm mostly interested in my money generating portfolio.

Conclusion

In last year's review, I went on to ponder whether we were headed off a cliff, and in February it certainly looked like that until it all turned around. I'm still inclined to think that the future is uncertain: stocks are the only game in town as interest are so low and market valuations are very high. The probability of good returns in future is diminishing as the current bull marches on. So what will I do? Keep adding to my portfolio with dollar cost averaging, just like until now. Godspeed for 2017!

Here's to the Eighties!

Typewriter, Schreibmaschine by Frank Jakobi

A couple of days ago I made a new milestone by getting a new first digit for my portfolio. On Monday the 7th of November, I recorded, for the first time ever, a portfolio value over 80k euros or 80 035 euros to be exact.

This is only 164 days after making my previous milestone of 70k back in May. What? That's less than half a year which leaves me a bit surprised actually but this is a surprise I'm quite happy to handle.

I didn't record an exact portfolio breakdown on Monday so I'll do that here now. Donald Trump just won the presidency yesterday on Wednesday and there's an ongoing market rally which may inflate these numbers a bit.

	29.05.2016	10.11.2016	change
Savings account	7101	5043	-2058
Passive funds, broad	22325	26698	+4373
Passive funds, niches	7089	8411	+1322
Actively managed funds	5310	6579	+1269
Listed stocks	19286	24954	+5668
Unlisted stocks	5250	5250	0
Fixed income	100	100	0
Cash	3700	4258	+558
Total	70161	81293	+11132

From the portfolio breakdown it's easy to see that since May, I have been buying quite many individual stocks. Should perhaps limit that because I do believe the market to be at least somewhat efficient and that passive funds are likelier winners over the long term.

Also, my net worth also just made 6 figures and is currently at around 101k. However, I don't really pay much attention to my net worth as my apartment is my only noteworthy asset outside of my portfolio and I couldn't really sell my apartment for as long as I wan't to live in it. Further, I consider my apartment perhaps more as a liability than an asset, so I'll just stick to focusing on my investment portfolio.

Anyways, next stop: the nineties! :)

The struggle with style

Figure hunched by David Rosen

I'm struggling to some extent with my investing style. I can't make up my mind on what my style actually is.

The thing is, every investment guru out there has a different style, and they all think, or at least say, that their style is the best and "you should do it like this also!". There's indexers and stock pickers. Technical analysis and fundamental analysis and quantitative methods. Value and growth and dividend investors. Market timers and dollar-cost-averagers. Event waiters, contrarians, patient money and traders. Allocators and robo-advisors. And so on.

And many of the gurus make a compelling case for their particular style of investing. I have not locked down a single style for myself but my portfolio is more of a collection of different approaches. A more cordial person could call it a "core and satellites" method. Someone less eloquent might call it a mess.

Some time ago, maybe two years back, I wrote a short investment plan for myself but haven't really looked at it since. I should probably return to the subject and try to define my methodology better. And then stick to it ;P

I recently came across a brilliant interview by Charlie Munger, Warren Buffett's "wing man" for decades. I hope I'll some day reach the same level of clarity :) The whole interview is pure gold but his and Warren's investing style is described at 5:58.

His four criteria are such gold I'll add a transcript of what he says here:

"1. We have to deal in things that we’re capable of understanding,
2. Once we’re over that filter, we have to have a business with some intrinsic characteristics that give it a durable competitive advantage,
3. Then of course, we would vastly prefer a management in place with a lot of integrity and talent,
4. And finally, no matter how wonderful it is, it’s not worth an infinite price. So we have to have a price that makes sense and gives a margin of safety, given the natural vicissitudes of life.
That’s a very simple set of ideas."

The reason I use a credit card for everything

rainbow of credit by frankleleon

I hold a multitude of credit cards.

In my wallet there's a Visa Debit from S bank, a Mastercard Gold from Nordea, a Mastercard from Hypo Bank and a corporate American Express. Of these I used only two: The S bank card for all purchases from the S group (because of the 0.5% cash back offer (”maksutapaetu”)) and one of the credit cards for everything else.

The reason I use a credit card for almost all of my purchases is that then I can have much less cash on my bank account. This may seem counter-intuitive for some: I actually want to minimize the amount of money on my bank account.

That's because of the time value of money or time preference in economics, i.e., the idea that money now is more valuable than money in the future. This is because capital has an earning capacity. If there's no cost involved, one should always choose to pay later. Due to the low interest rate environment this doesn't currently mean as much as it used to but the principle is sound.

When I use a credit card to pay for everything, I don't need to keep money on my bank account. Instead I can invest that money. Let's say I would invest 1000 euros, that I would otherwise keep on my bank account, for 50 years and make 6% on that investment, then I would end up with around 18 400 euros. Now, that is extra money just from behaving more smartly without zero sacrifice or saving more, etc. Using a credit card is a no-brainer.

I always pay off my credit card bills in full. The interest rates on credit cards are quite high and no person who's in control of their finances should have an outstanding balance on their credit cards.

Finns' trust in national pension scheme is crumbling according to Nordea

distrust by Fabrice Le Coq on Flickr

A couple days ago Nordea bank released information on a survey they had commissioned about Finns' opinions about their pensions. More and more people are starting to question the pension system and it seems I'm not alone with my ideas. A severe distrust seems to be spreading and fast.

I tried to locate the actual survey data but could only find distilled information. There's a press release about the survey from Nordea and subsequent news articles on national media outlets such as HS, Kauppalehti, Talouselämä, Taloussanomat, etc.

Men were especially pessimistic. Only 23% of the men surveyed had said that they believe the level of the national pensions will be enough. This was an 8 percentage point decrease from last year. Let me repeat that: Only 23% thought their pensions will be big enough.

The survey also asked about people's saving habits and found that more than half of the population, 58% actually, are saving for the future. This represents a 4 percentage point increase over a the previous year's result. The average savings amount was 50 to 200 euros a month. Those are actually pretty ok numbers if they would turn out to be true. The data can be somewhat biased though.

They also report that about 15% of the people who save have a special pension savings account (”PS-tili”) or a voluntary pension insurance. I should look into those with more gusto but on the surface they seem quite expensive and/or susceptive major political risks. Maybe I'll write a blog post about these in the future.

I also took a look at another data source which seems to contradict Nordea's data. OECD reports savings rates as percentage of household disposable income per country per year. According to OECD the savings rate in Finland was actually a negative in 2014 with a savings rate of -0.2%. This corresponds to about 5% in the USA and about 15% in Sweden. Man, those Swedes...

OECD: Savings rates of countries as percentage of household disposable income

The OECD data feels more representative overall and the Nordea data more biased but this is merely my speculation. At least the OECD data tells the same story as my last blog post about Finn's net worths. What do you think?