The Best Investment Tip I Ever Got

My colleague Chin Hui Leong once told me a story regarding a company’s investors’ presentation that he had attended.

During the presentation, management showed the crowd that the firm has been delivering great returns for shareholders over the past decade through its growing dividends and multiple share splits. Any long-term investor in the company would have been pleased with the returns over that period.

Yet, when it was time for Q&A, an angry shareholder demanded an explanation from management on why the company’s share price was still more or less unchanged from where it was 10 years ago.

In order to not insult the shareholder’s intelligence, the company’s management tactfully deflected the question and asked the shareholder to check with her broker on how much the value of her holdings in the company had actually grown (hint: the answer would have been “a lot,” given that the value of her holdings would have multiplied along with the share splits even thouugh the share price had remained unchanged on the surface).

Although we can brush off the incident as one concerning an uninformed investor, there’s still somethng we can learn from the episode.

For instance, it was clear that the shareholder had never bothered to track her returns properly. This is also true for many investors that I have met.

Thing is, many of them invest in a hap-hazard manner and never bother with tracking how their entire investment portfolio is doing; the worst ones don’t even know how each investment is really performing!

These creates a few problems.

Firstly, we have no idea how each of our investments are really doing if all we are watching is its price. A focus only on the price can blind us to the returns from dividends, which can be very important as well after a long period of time.

Secondly, we might end up focusing only on the investments which have appreciated a lot in price (even if it was due to a reverse split, which is largely meaningless for the investor) and disregard the ones that have fallen. This can give us a false sense of superiority on how well our portfolio is really doing.

I used to be one such investor as well when I just started investing – I never bothered to track my total returns carefully. However, I realised the advantage of proper tracking of my performance from one of the many investment books I was reading at the time. Turns out, that was the best investment tip I ever got.

Careful tracking of my returns allows me to really see how I was doing in each investment I made. It also alerts me to investments which have not worked out, so that I can re-evaluate my investment thesis and improve the efficiency of my investing process.

Only by understanding how our portfolio and each investment is doing are we able to learn from our successes and mistakes. That’s the way to improve our skill as an investor.

Without proper documentation of your investing returns, it is like starting a business without recording your accounts. You might really be making sales, but how sure are you that these sales can be converted into profit?

Foolish Summary

If you have not already created a tracking system for your portfolio, there are many websites such as Bloomberg, Google Finance, or Yahoo Finance that allows you to track your portfolio.

Sure, these free-to-use webpages might not be the most accurate way to track your portfolio, but they are still a good starting point for all aspiring investors.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn't own shares in any company mentioned.