This isn’t a get rich quick story. It isn’t even a got really lucky story. It’s simply an example of how learning a little bit about investing, choosing the right investments, buying at the right price and then just leaving your portfolio alone can be a good way to increase your wealth… or pay for 19 months worth of travels.
I’ll be the first to admit that the timing of my travels took advantage of the rising sharemarket of 2003-2006. But saying that it wasn’t all sunshine and lollipops on my side as the Australian dollar was also down at the same time and my spending money didn’t buy nearly as much as I would have liked it to – I remember buying a pint of beer in the UK for AUS$12 and this was ten years ago in 2005!
How I got started investing before my travels
When I was a young Electrical Apprentice in 2001 I was fortunate enough to discover Warren Buffett and then study value investing. I watched the markets for about two years, making a few small investments but basically just spent my time learning. When I was finally convinced that I had found some strong businesses that could recover from their at the time depressed prices (the tactics of a value investor), I began buying with what savings I could muster up and then I opened a margin loan.
Now, margin loans can be risky, very risky. Actually, during the GFC I was a bit of an angry man watching the fallout from the Storm Financial saga as friends and many others lost their savings after following bad advice from them to borrow money to invest into an inflated market (As life works out though – helping a friend through this eventually turned into the inspiration to share how I invest via Shared Investor.)
However, I believe when used wisely margin loans can be a very handy tool to help buy as many under-valued investments as possible at certain times in the market cycles – and this is what I did in 2003 (and again in 2009 when the market crashed).
How my investments increased as I spent all my cash travelling
In early 2005, I spent 3 months working on a remote island in Papua New Guinea to save for the trip and then in about September I set off around the world – first stop China. With my savings in my spending account, my portfolio set-up so that it could chug away without me worrying too much about it and the dividends from my investments covering the costs of interest on my margin loan – I was ready to go see the world.
As I travelled I would jump on a computer in an internet cafe from time to time (I didn’t have a laptop at the time and there were few smart phones yet) and have a look at my portfolio, but I did not buy or sell anything for the whole trip – I just let it roll along.
When I returned back to the song of magpies and the sweet smell of gumtrees in Australia (I love how travel can change what you notice and take for granted.) The money in my savings account was down to $200 (Luckily I landed a job within a week.), however my portfolio had increased by more than I had savings in the bank before I left. Even though it was only slightly, something like $19,000 in savings had disappeared and my investments were up by $20,000, it was still a good feeling!
Note here that I did also work in the UK and this did top up my travel funds account from time to time and without this I wouldn’t have been able to travel for as long or would have had to miss out on some of the experiences that were more expensive, but you get the gist of it.
Why this worked for me
I had some idea what I was doing – If I did ‘get lucky‘ with this experience it was because I walked into a bookshop and picked up a book on Warren Buffet (I still remember this Ah-ha moment.) This is what has made all the difference to my investments, not timing, but gaining the right knowledge and then putting it into practice.
This knowledge helped me to pick a handful of undervalued companies that had their worth ‘realised‘ by the market by the time I got back. WOW and COH were two of them. However I also held FGL (Fosters Brewing) at the time and it didn’t do much at all, which I learnt a lot from and it also showed me that it doesn’t take many big winners for your whole portfolio to do well.
I had a concentrated portfolio – What helped me manage my portfolio and helped make my returns compound so well was the fact that I only held 5 companies at the time – overall 2 more than doubled, 2 did not much and the 5th did pretty well. Why this is important is I only had to understand the dynamics of five companies. I have since learnt even further how important this is. To be a great investor I don’t believe you have to know every company listed on the market, or the dynamics of every industry, or what the market is doing from day to day. If you just stick to what you know over time I believe your odds of doing well are greatly increased.
I didn’t mess with my portfolio – Travelling whilst I was younger, I wanted to explore, have fun, be a rat bag and coming from a small town I wanted to experience the big bad world – not have my head in an annual report. If I had noticed something dynamically changing with one of the companies or an industry I may have sold out of one company and researched buying into another, but as it was I just left it alone. The portfolio still did well and I didn’t spend an ounce of time ‘worrying‘ about my portfolio.
For me this was the perfect balance of setting up my long-term savings to compound, whilst kicking back and enjoying my travels. The pay-off being, coming home with no cash, but still being financially better off than when I set off.
This taught me how powerful investing could be, so I stuck with it…
How it worked again…
As I said this wasn’t a one off lucky experience. When I got home from travelling in 2007 and began to start squirrelling away savings again, I couldn’t find anything to invest in – It was all too expensive for me. But it seemed that no one else thought this and the market got more and more expensive, everyone was getting rich in the market so they kept buying, but I just kept putting cash away and expanded my margin loan facility. I had no idea when, but I had a feeling something would eventually have to crack – and then came the GFC. My patience had paid off, no one wanted anything to do with the share market so I started buying unloved and undervalued stocks again – as many of them as I could. Then once all the pessimism about the world ending had disappeared, the value of my investments was again recognised by the market.
This time I didn’t travel around the world again, I did do smaller trips, but this time I used my swelling portfolio to help fund time off to move to the Sunshine Coast in Queensland, Australia to surf more, study health and start an on-line company.
How it will work over and over again…
Well, if you are a subscriber to Shared Investor I guess this time you’ll be able to watch first hand. But it will be exactly the same approach, which is actually two value investing related approaches:
- Create a list of great businesses and get to know them well, ensure that their business models and finances can survive a down-turn and then begin to buy them as the market gets all pessimistic on them. Then wait until the market corrects (or over corrects) and realises this value.
- Find undervalued companies where I can see a margin of safety between what the market is valuing them at and what their balance sheet says their intrinsic worth is. The value investing world calls these ‘Asset plays.’ For example, in the past I invested in a gold miner that was trading at less than it had cash in the bank, plus they had a proven ore deposit that they were developing which I had calculated a discounted approximate worth of, I bought them and then waited for the market to realise this and correct. I have also recently made a very similar purchase, but with an oil company which I believe is underpriced due to ‘the oil crisis‘ – time will tell how this one turns out.
I believe there is a lot of miss-truths about the share market. For example – You will get rich overnight, you will lose money, it is gambling, it is run by sharks, you have to know everything that is going on all the time, only experts can be profitable, you have to watch it everyday etc etc. I am always amazed at how over complicated some make it. Truth is it is just another market place…
Imagine your local farmers market:
One day you go there and Jim your local farmer is offering you cuts of beef at $16 per kilo – you decide this is fair and you buy a kilo to get you through the next few days.
The next day you are passing through the farmers market again and you notice Jim is offering you cuts of beef at $160 per kilo – you shake your head and are thankful you bought enough yesterday to get you through the day and don’t buy any.
The next day you are at the market again and you notice that Jim now is offering you cuts of beef at just $1.60 per kilo – you load up! You buy Jim out of beef and on the way home you buy a big freezer to store it all in. Over the next few months you don’t care what Jim is offering his cuts of beef for each day as your freezer will still be paying you and your family dividends for months to come…
This is how I approach investing, except you never ‘have‘ to buy anything to feed your family the next day – you always have the advantage of having the option to wait. I believe that by thinking about ‘the market‘ this way anyone can invest successfully overtime in the share market – to help support their family, supplement world travels, fund studies or to start other projects they believe in… or whatever else blows your hair back.
Enjoy the ride!