My simple question, is it possible for passive investors without too much of a concentrated portfolio make returns to the tune of 20% CAGR?
I’ve read all the usual books referred to here, can read financial statements, although can’t think of the implications of each number and possibilities of the numbers being cooked up. I am an engineer although I have a business degree and read business publications. ( I know what Munger says about business degrees and generally think, he is right in some aspects)
Of course, I should be able to invest in a few mutual funds and forget about it. But I’d like some intellectual challenge to pursue.
When I was pursuing business degree, my professor/coursework emphasized on diversification and technical analysis. Although now after reading about it for about a year, I have learned from the wisdom of VPers that concentrated portfolios and fundamental analysis of undiscovered companies is what creates wealth.
Here is my current strategy:
I have started a few investments in individual stocks starting March 2015, my current portfolio is like a fund.
(Not that I started in the bull market, it was too painful to open a demat account earlier.) I buy a few stocks of every company I’m interested in/hear of, for tracking and further research. I dread paying taxes, so I plan to hold a stock at least for a year and have not sold anything yet, in spite of some of them going down more than 25%. So I know I can control my emotions and can be patient.
After a year, I need to figure out how to sell a few and make my portfolio more concentrated. I have only 2-3 stocks which are at least 5% of the portfolio.
With that background, my question is, what is the process I should follow to make 20% annual returns for 15-20 years? I’ve calculated what that amount would be and that would be more than sufficient for my future needs with the amount I’m planning to invest. Do I need a lot of undiscovered companies in my portfolio to get there? Or, subscribing a mutual fund should be enough? Although I’ve started SIPing to MFs, I’d like to pursue some intellectual challenge.
Again, my question is to those of you who’ve been invested for 10+ years/have gone through multiple cycles/have known people who’ve done that. I know the last 20 years have been great for Indian economy. Do you think, will this trend continue and will equity investing create as much wealth as it had in the past?