What do you expect from your investments? (a case study on Growth Island)

what do you expect from your investmentsUnlike what many ‘investors’ would like to believe, the stock market is not a lottery. You don’t buy a ticket to the game, and just hope your lucky numbers turn up and make you millions of dollars!

But still, when you buy yourself a ‘share’ (or stock), no doubt you’re hoping to make some money! But how often do you consider how much money you’re expecting to make, and your reasoning? How do you know when your expectations are sensible, and when they’re just a wild fantasy?

Before we answer this, let’s first consider the different ways that a stock might increase in value. [Read more…]

The Winds of Change are blowing across the Islands

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Change isn’t always easy to deal with in life, but it happens for us all one way or another, and sometimes it’s incredibly exciting and energizing!

There’s been plenty of change going on in my own life lately, and I thought I’d take a moment to share some of this with you. After all, some of these events will probably impact how often I post and further develop this site in the short term, so I want to make sure you have some context in case things get a little quieter on the Islands!

So, I’ll kick things off with… [Read more…]

Million Dollar Islands update – April 2015

Portfolio 30 Apr 2015 - Islands summary

It’s time for another visit to the Million Dollar Islands, to see what its residents were up to during April.

For those who haven’t previously visited these Million Dollar Islands, the goal is to have these Islands collectively grow to $1 million before I turn 45 (around 11 years from now), as I highlighted in this post.

On a personal front there are a few changes happening, which partly explains the slight delay with this post. It’s also likely to mean a slightly slower posting schedule here on the Islands in the near term – despite the already easy ‘Island pace’ we’re setting here. I’ll share a little more in my next post.

But for now – how did the Million Dollar Islands go in April? [Read more…]

An obsession with investment extremes

extremes‘Framing’ is one of those funny mental things we do that can change our decisions and behaviours depending on how a particular situation is presented to us. As an example, I highlighted in this post how the ‘frame’ of a particular path a stock price takes to get from point A to point B can influence how we feel about our investment, even if all paths end up producing exactly the same returns.

It helps to have the right ‘frame of reference’ when making decisions. Otherwise you might not be using all the information you have correctly, or your decision might be skewed by some thoughts that are completely irrelevant. It equally applies when reflecting on the results of past decisions. [Read more…]

Putting a value on the things you truly value

fishermanPutting a value on financial assets is relatively simple. There are some well-established methods and calculations you can perform, and you can usually get access to some pretty reasonable data to estimate some of the inputs and assumptions like forecast growth rates or expected profitability. There’s also a whole range of market benchmarks available like P/E ratios and other metrics for comparing asset values.

Of course, there’s an element of art to all this, and even the most precise calculations won’t help you make better investment decisions without a little wisdom and understanding of business.

But putting a value on some of the more important things in life is far more challenging. [Read more…]

That liberating feeling of selling your bad investments

liberating

One of the hardest things to do in investing is to sell your investments at a loss.

The reasons for this are fairly easy to understand. We hate losing money. The emotional pain of it is far greater than the joy from making an equivalent amount of money. And most of us don’t consider an investment a loss until we pull the trigger and actually sell. So we let our bad investments just sit there, hoping one day it will return to the price we paid, and avoid the mental pain of losing money.

Our egos can also suffer greatly from crystallising a loss. When you sell, it becomes a permanent mark on your investing record. It’s confirmation that you were wrong. But if you let it sit there, there’s always hope that it will come good one day. [Read more…]

Million Dollar Islands update – March 2015

Portfolio 31 Mar 2015 - Islands summary

It’s the end of another month, which means time to take a short trip over to the Million Dollar Islands to see how its residents performed in March. After all, they can’t expect to just laze around our beautiful Islands without putting in some hard work now and then!

For those who haven’t previously visited these Million Dollar Islands, the goal is to have these Islands collectively grow to $1 million before I turn 45 (around 11 years from now), as I highlighted in this post.

This is the first month without the turbo-charging power of an investment loan, so I was expecting the waves around the Islands to be relatively tame this month. [Read more…]

Surviving a walk through a minefield

minefield

Most of us hope to grow wiser as we grow older, and to learn to make better decisions in life along the way.

We learn new things from most of our personal experiences, both good and bad. But it’s often the mistakes that have the most powerful impact. Particularly if you’re aware enough to recognise what went wrong, be grateful for the learnings, and use the experience to make better decisions in future. This is when wisdom really develops, wisdom that can also be shared for the benefit of others.

But where this can all go terribly wrong is when you resist the mistake. You pretend it never happened, or you don’t face up to it and deal with it in a constructive way. The ego is just overwhelming you to keep its pristine appearance intact – to admit mistake would be like death! [Read more…]

Advanced Retirement Calculator – a detailed picture of your financial future!

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Two weeks ago I introduced you to the Early Retirement Calculator, a useful tool to give you a quick snapshot of your expected retirement date with a few quick inputs.

But life is never this simple. Income and expenses don’t just grow at a simple, annual growth rate forever. Perhaps you’re expecting a significant promotion in three years, your partner is going back to work once the kids are a couple of years older, or you’re expecting a windfall on your 40th birthday.

Perhaps you’ll have your mortgage paid off in 7 years, assuming you put all your net income towards this, which will significantly change your annual expenses at that point. What if you have some major home renovations planned in the next few years, or an overseas family holiday every four years? And what about your plans to pay for your children’s private school fees in 10 years time? How will all this affect your financial future and potential retirement date? [Read more…]

Another great investment – but definitely a bad decision…

20150317 - bad decisionRecently, I shared a particular investment I made in the past that I was very happy with, even though the stock continued to soar many multiples above the price I sold at. It was all about sticking with my plan and not wavering.

Similar to that investment, I have another great example of a stock purchasing decision I really did my homework on, and had a very solid basis for my investment decision.

However, unlike my Greencross investment, my decision to sell this investment was definitely not a good one. But every poor investing decision offers an excellent investing lesson for others based on real experiences! So let me explain… [Read more…]