In 2019, Swedbank announced, that they’re canceling all fees and commissions for buying, selling, and holding shares in the Baltic stock exchanges. For portfolio value of up to EUR 30 000. I don’t know what benefits there are for the bank, but people like me, who are interested in investing, can start investing with really low amounts of money. Think about it, buying a share worth EUR 0.20 with no fees. That’s a great deal!
So I decided to hop in and start investing. With my only experience being just buying a Vanguard Lifestrategy fund, I started picking shares.
As for the market, the benefits for investors already invested in the market – are even better! New monies flew in and pushed the prices, and indexes to all-time highs in the region.
The combination of ‘new’ money and the Covid-19 stimulus led to the highest rally ever in the region. I entered the market just after the dip caused by the panic and fear of Covid-19. For contrast, the highest-ever peak of the Baltic GI was in July of 2007, when the global financial crisis started. I was 14 years old and still remember how horrific it was for the economy. It was felt throughout the country and many families suffered. It took 10 years and in May 2017 the index reached its 2007 level.
To my understanding, the financial crisis was never fixed and I am a believer in what people like Mr. Ray Dalio preaches, but this post is not about that.
Since its inception in December 1999, this index has multiplied 13 times. Nice. Think about the received and reinvested dividends. Wow… Anyway, back to the topic.
‘Diversification Is The Protection Against Ignorance’
Since Mr. Buffett is so successful, and I am so ignorant, I took his wisdom and started to think about how to protect myself. The first approach was to allocate the same amount of funds to each holding, i.e., if EUR 10 000 were invested in 10 companies, then allocate 10% (EUR 100) to each holding. And for a few months, this was my strategy.
Since I am a beginner in investing, I was thinking about how and what to do a lot. And one follows his money almost every day and it all feels stressful. When I wanted to sell some ‘winners’ and put money in the ‘losers’, I realized that this strategy doesn’t work out well. It’s not only hard to exit a position. It is even hard to sell the shares at the price you want to reduce the position.
It was easy to sell shares of a very liquid company like, TAL1T. It always has been one of the most traded companies in the Tallinn Exchange.
You can see that hundreds of thousands of shares are traded monthly and it’s easy to open and close a position in this company. For comparison, one of the Baltic dividend dinosaur, Siguldas CMAS, SCM1R, looks just about dead.
As you can see, in the period of last 2 years, the highest number of trades were just over 2500, and ever since it hasn’t been close to it. For obvious reasons, of course. The share price is high, therefore, the dividend yield – low. It currently trades with a P/E ratio of over 20 and returns could be around 4% a year.
The Strategy Change
I don’t remember exactly when, but I decided to change my approach. As I gave up allocating a certain percentage of funds to any given company, I divided all companies into 11 GICS sectors. And decided to allocate equal parts to each, i.e. 9.09%. Seemed to be a reasonable approach… Well, not really.
Here I explain. There are currently 13 companies in my index that are considered to be cyclical. And only 1 in the Health sector. So, if I had EUR 1000 invested my excel sheet tells me to allocate EUR 90.91 to 13 companies, and put EUR 90.91 in Latvijas Juras Medicinas Centrs, LJM1R. In result, you have tiny amounts invested in big, actively traded companies and disproportionately high amount in a small, illiquid business. Had to keep thinking about the approach.
How I Finished 2020
A total of EUR 979.33 were paid in the account and I finished the year with an increase of 11.89%.
While the Baltic GI performed better. Much better.
I guess I can only agree that even a monkey throwing darts on random shares could do it. 😀
