Fin-Ed (now Simplinvest): Shareholders’ letter 2018
When last year I wrote the first letter to Fin-Ed shareholders, I didn’t have a clear plan for the future.
I wanted to continue working on this side project and to see if it had the potential to be a business, but apart from that the future was covered by a dense fog.
One year later, I have a bit more clarity.
Helping people being better investor can be a business.During this year I found paid clients and...decided to open my own company, Simplinvest.
It was a big leap of faith for me.
I am almost 33 (next January), never had any entrepreneurial experience before, and didn’t have a clear product yet.
All of this didn’t stop me from leaving my paycheck job, where I didn’t find any satisfaction or personal growth, and I moved in a sector where I can actually make the difference.
I took this decision in July 2018, and open officially my company in September.
Four months are definitely not a long time to judge a company, but for now I am happy to say that Simplinvest is established and profitable.
That’s something I am extremely proud of, especially in this era of “disruptive” startups that keep on piling losses after years being listed on the stock market (Cough- Tesla - Cough).
In this letter I will cover how the Facebook group, the true origin of Simplinvest, is doing; how the initiatives I talked about in the last letter played out and few more relevant staff that happened this year.
There will also be a peek on the future and how my stocks portfolio did in 2018 (spoiler: it wasn’t fun to watch).
This letter will be very long, so feel free to skim the parts that you are not really interested into and focus on what’s important for you.
Attention is becoming more and more scarce, so use it wisely.
The Facebook Group: Good and Bad
The Facebook Group was where everything started.
At first glance you will see a huge progression: the number of members almost doubled, passing from 181 to 333 members, and all of this growth was organic.
The interactions, instead, didn’t improve much.
I tried a different format, using topics that were closer to the “everyday life”, or the most common problems that could sparkle some discussion, but apart of few likes here and there, I didn’t manage (yet) to create a community of people keen to learn how to invest and willing to share advice and ideas on how to do so.
I haven’t given up on this project yet, but I started wondering if Facebook is the right place for it.
The activity of a lot of groups I am part of (even with 10 000+ members) is decreasing, and in many groups the quality of the conversation is extremely low.
Although I still think it’s a great way to reach people who never thought about investing, I am considering to explore other platforms and solutions to create a good community (Reddit looks pretty promising in this regard).
On the other side, now community-building for me is not a top priority anymore.
As an entrepreneur, I need to keep a close eye to the bottom line and to spend my time and my resources in the most effective way to make money to sustain my company.
I am still all-in to raise awareness and give talks to get more people closer to investing as a topic (if you want to have me as a speaker, reach me out at lorenzo@simplinvest.net ), but I put this more in the “nice to do” pile than in the “must be done at all costs” pile.
I will still dedicate some time to the Facebook group to keep the original spirit alive, but I will do it more for fun and not because I want to build a company out of it.
Meetups and a Paid Workshop
During 2018 I organized 3 free meetups in Cracow, but the results were not very encouraging as well.
Even if the events were for free, were promoted on different online channels and especially to the members of the Facebook group, the attendance wasn’t great.
It may be that my marketing is not good enough yet.
This is something I am working hard to improve in 2019, and I am extremely happy to have a talented marketer, Konstantinos Ntoukakis, guiding me through the process of creating funnels and exploring new client acquisition channels and strategies.
There were also a few more problems: investing on the financial markets is a pretty new topic here in Krakow, the events are run in English (not the best for somebody based in Poland) and I don’t have a solid reputation as a financial expert.
I am working hard to solve all of these problems, but they need time and as an entrepreneur, I am looking for the things that will bring me the best ROI, possibly without committing a huge amount of resources.
After testing the meetup format multiple times, I decided to give up on it, at least in the “do-it-almost-by-myself” mode I used so far.
I am still more than open to go and deliver presentations to an already organized event (and if it’s in Krakow I will do it for free), but organizing a meetup from the scratch it’s something that requires plenty of administrative work, so I prefer to focus my attention elsewhere.
If meetups are something that I will not be organizing anymore for Simplinvest, what I will keep on doing is organizing paid workshops, instead, which are also the main product of Simplinvest at the moment.
In the last 6 months I worked and refined all the knowledge I gained about investing in the last 2 years and I condensed it into a workshop called “Investing for not Professional Investors: a Crash Course”
The name itself is pretty explanatory, that is exactly what it does.
Coming to this workshop you will acquire all the knowledge you need to make your own investing decisions in an informed way, avoiding costly mistakes and earning money taking the right amount of risk for you.
You will learn how to evaluate banks, platforms, financial advisors, financial products, and how to deal with all the practical aspects of investing.
The next workshop will be on February 2nd/3nd in Krakow (mornings only, from 10:00 to 14:00) and if you will get a ticket before the end of this year, you will be able to get a 20% discount on the full price, saving more than 100 zl.
This workshop will be the second one of its kind. There was a pilot project in November where 4 people joined, and one of the feedback I got a lot was that 2 weeks was a notice too short for people to attend.
Lesson learnt, here we go :)
More relevant stuff happening this year
Apart from Simplinvest, there is another initiative in the financial education I am involved too, and if Simplinvest is growing, this one is literally skyrocketing.
I am talking about Lixi Invest, an Italian startup very active in the financial education area.
My cooperation with them started last year, almost as a game, when the founder (Luca Lixi, an independent and certified financial advisor in Italy) wrote a post on his Facebook group saying he was looking for people who were interested about investing and willing to work hard.
I thought I fit the bill, but I didn’t meet the age requirements (Luca said he was looking for young people and 30 was the brackets he gave).
Thankfully, this didn’t prove to be a must-have requirements (other 4 members of the team turned out to be older than that) and one month later, we officially started.
The beginning was very slow, it was mostly a shit-ton of stuff to learn from us, about investing, sales and marketing, all at once.
Getting access to this extraordinary material was our salaries for the first few months, then things started getting serious and we launched 2 products within 3 months.
I will share them for my Italian readers who want to check them out:
Lixi Strategy, an online video course that gives people an overview about what changed in the investing world in Italy and how you can establish your own financial strategy based on your personal goals.
Lix Files, a membership made for the stock investors, which gives them ideas on which stock to buy and provides also deep analysis about the stock market and other content that will help people understand better how to do stock picking. This product is dedicated only to people who have already a solid and boring investment plan in place, and still some more money to spare.
We have more projects in store for 2019, but I cannot reveal them right now.
So far, I have been extremely happy to work with a group of motivated and professional people which are making more and more Italian investors able to find the best investments for themselves, and I hope we will manage to reach more and more people in 2019.
Simplinvest 2019: what’s going to happen
Apart from the second edition of the workshop which will take place on February, there are few novelties in store for Simplinvest.
The first one is that there will be a legit website coming up soon.
There you will find all the content I shared on Facebook in the last year and a half, organized it in a way that will make it easier to read.
You will also be able to find the most common questions related to investing (how much money do you need to start, is it for you or not, etc.)
I have been answering these questions over and over again, so it will be more practical to have the basics covered.
Apart from that, I will continue to provide individual training to non professional who wants to get a better understanding of investing, which will translate in choose better financial products, getting a bigger gain and a lower risk compared to the traditional alternatives.
I really enjoy doing it, because I can have a visible impact on somebody’s life, and I can improve my client financial strategy straight away.
But at the same time, it’s harder to have a bigger impact and to help more people, that’s why I will focus my attention more and more on group training and on the creation of an online product.
When it comes to the latter, I am still doing some market research so there is a big chance that it will not be completed by 2019, but it’s definitely a project I am working on.
Groups training, instead, will be the main focus of my activity for 2019.
I will provide several private workshops in different cities (mostly Poland, but I am looking also at some other European cities) and I want to propose this service to companies, as a benefit for their employees.
We live in an age where companies are going the extra mile to take care of their employees.
Plenty of companies offer fitness programs, language classes, leadership classes and other programs aimed to make their employees happier.
And financial wellness fits perfectly in this area.
People who know how to better managed their money are calmer and less distracted at work, as highlighted in this report. They are also less likely to jeopardize their relationships and they will not jump the ship for a job offer that gives them a bit more then the place where they are working right now (and an high turnover is a huge expense for a company).
For these reasons, I am finalizing a training aimed for employees in companies that will explain them not only how to better manage their money and how to invest it, but it will also provide a practical guide to solve the most common “money problems” that they will encounter them into their life.
Questions such as:
“Is it worth to get a loan to buy a flat in my current economic situation?”
“How can I choose the right loan/saving account/insurance for me?”
“I want to invest some money. Where do I start?”
Will have a clear answer.
This specific type of training will have two modules: one will be called “Investing for beginners”, where the basic topics will be covered, and one called “Investing: advanced”, a follow up which will give more technical details about financial products and the general math that you need to use if you want to be a good investor.
If you are reading this letter right now and you are interested to have this type of training in your company, contact me at lorenzo@simplinvest.net and let’s have a chat.
For financial nerds: my 2018 Stock Picking year
As the last part of this letter, I will have a look at how 2018 went from my personal investing perspective, especially how my stock portfolio did in the last 12 months.
Let’s have a look at the final result.
At the end of 2017, I had roughly a +200€, so that means that the performance for 2018 should be calculated this way: -898,3-200/(4388,91+898,3)= -20.7%
The first part of this ratio is the total return. In the case above, it is the negative result of this year and the loss of the 200€ gained.
The second one is the total amount of money I put into work (the current portfolio+ the money I have lost in the process).
This number is very harsh to take, nobody likes to have a -20% in a given year and I am no exception.
If this year I just left my money on the bank account, I would have done better.
But was it really that bad compared to the benchmark?
Turned out it was.
Let’s check how the 2 ETFs I chose as a benchmark last year did:
Lyxor WIG 20 UCITS ETF which represents my benchmark for the Polish Stock Market: -6.77%
Lyxor S&P 500 UCITS ETF, my benchmark for the US Stock Market: -1.13% (this year the exchange rate for a Polish Zloty holder was favorable)
At a first glance, it’s obvious that my portfolio did a lot worse.
Considering that 2562€ are invested in Polish stocks and the rest in the US stocks, taking out the 201,25 € still in cash, that means that the % of Polish stocks was 58.31% and the % of US stocks was 31.69%, so the return I would have got investing in the 2 products I used as benchmark would have been: (-6.77*0.5831)+ (-1.13*0.3169)= -4.31%.
Still not nice, but a huge lot better than the -20% I got this year.
Although this is not a nice result and I am not happy at all with it, I still need to own it, have a look at how it happened, and learn as much as I can from it.
The first thought was: “I am extremely glad that I don’t make a business out of stock picking” and that I am suggesting to all of my clients to stay away from picking single stocks and choose well diversified ETFs, instead.
On the bright side, instead, compared to 2017, there is almost twice as much money at work, even with the paper loss I have at the moment (2300€ vs 4389€).
If needed, this is a proof that when you are a small investor, saving and having correct financial habits is way more important than getting all you can out of your investments.
Even with a 20% loss, I managed to get significantly more money at work.
2018 was also the year when I realized the true meaning of volatility, and I saw what really means to invest in more “volatile stocks”: when the market is going down, they just go down more.
After this result I had a hard look at my portfolio and I realized that a lot of companies are bought are so called “small cap”. They are companies with a small capitalization, and because of this they move a lot more (in one way or another), and that can bring very good results or very bad results.
This year, I got the short end of the stick, but on the other side I am sure that my portfolio has now better companies than the one I had in 2017, so it will eventually managed to recover and in the meanwhile I will keep on getting dividends out of it.
Bad luck was something that hit my portfolio hard this year.
Ready, steady go and in January the biggest position in my portfolio (Silicom, which now I sold) lost a huge contract with a very big client, and with that 40% of its value in less than one week.
Synchrony Financials lost a couple of big contracts, too.
Facebook went multiple times in the eye of the storm for the Cambridge Analytica scandal and people “realized” that their data were sold to advertiser and got on a rampage.
Another company that I bought, Altus TFI (a Polish fund) had its former CEO and main shareholder arrested for being part of a scandal, but he was put in jail before having a process on a shaky ground at best, and the stock (and the business) got hit extremely hard because of it.
Because of that, they were forced to say stocks in other companies I am owning and which I own as well, driving down the price.
And all of it happened without figuring out if the guy is actually guilty or not (the process is still ongoing).
Plus, few other situations, but I don’t want to get going all day about it.
At the beginning I was complaining about this bad luck that hit so many stocks in my portfolio, but then I realized that this is part of the game and it cannot be avoided.
Last year I was lucky, this year I was unlucky and I didn’t have a clear process to protect me against this bad luck, so I sat down, study hard and figure out what to do with it.
I came up with two ground rules which I have been following since then and that already brought a big benefit to my portfolio, avoiding bigger losses.
Limit my exposure on a single stock to 10% max.
I applied this rule straight away after my biggest position lost 40% in a short amount of time. Unfortunately, I am not Warren Buffett and, unless I have a HUGE understanding of the business and of the competitors (which takes years to build) I decided to have a cap of 10% of my portfolio for any single position.
In this way, even if I misjudge a stock, I still have a minimal loss and more chances to get my money back with better stocks and business.
Refine the selling process.
When I started buying stocks, I was a keen advocate of the “buy and hold” approach.
Although this works marvellously for well-diversified ETFs, it works a lot less better for single stocks, especially if you don’t have a crystal clear understanding of the business, and you don’t have a risk-reward scale in mind.
Let’s take Facebook, for example. I am still sure it’s a great business but when the stock went over 200$ I was feeling it was priced for perfection.
Instead of acting on it and decide to sell it to buy some stocks which were offering a better risk-reward ratio, I kept holding it and ended up missing a big gain, and then get a paper loss.
For this reason, now I have selling price for all of my stocks, and if they should hit them I will pat myself on the back, selling them and then move forward looking for another opportunity or waiting for the stock price of the company I liked to go down again.
When it comes to improve my investing process, two book were incredibly helpful: “Mastering the Market Cycle” by Howard Marks and “Active Value Investing” of Vitaliy Katsenelson.
These two books gave me invaluable hindsight in understanding where we are in the current market cycle and how to refine a selling process if you are a value investor (plus much more, but you will have to read them to get the full picture)
Few more extra lessons that I learned this year being in the stock market:
Pay much more attention to management and the business side.
When a stock start losing more and more value, you will feel like you did a dumb thing buying it.
Something like “I am throwing my money out of the window”.
And there is only one thing that will prevent you from selling this stock: how much faith you have in the company and in the management.
That’s why I made a point to check out much more carefully the business model and who is in charge of the company, and if something didn’t feel right, I didn’t buy it.
In the last 4 months, I spent a smaller amount of time checking out the balance sheets and the numbers of the company (mostly I was making sure that the numbers didn’t deteriorate and they were able to produce real profits) and then I focus much more on understanding the ecosystem where the company was operating, who were the competitors and which perspective the sector was having in the future.
In other words, I tried to look hard for “qualitative factors” which would make me confident that a company would be able to push through during tough times and that would allow me not to sell even in case of a fast fall of the stock.
I am finally happy to say that 90% of the companies in my portfolio meet these new criteria, and even if the results so far haven’t been great, I am expecting them to produce a good returns in the next years.
Buying when the market is going down is extremely hard, I always feel like an idiot.
This lesson is extremely valuable for me, because I haven’t been an active investor during 2000 and 2007, the last big recessions that we had.
I started investing in 2014, so I mostly experienced a bull market, always going up and when there was a 5% drop, people were screaming “buy the dipppppp”.
Then 2018 came, with crazy volatility and the US stock market who went down almost 20% from the peak it reached this year.
And then people started doing what they do best in this situation: they panicked.
A lot of them started selling because they are scared to lose even more, and now on investing groups you find a lot of traders claiming they are making a lot of money shorting the markets and predicting a long period of doom.
I personally don’t believe that the economy will go into a deep recession in 2019 and stay there for the next 10 years, dragging down the stock market with it, but even so it’s very hard to buy when a lot of people are panicking and your holdings’ value keep going down.
“Buy low and sell high” is a deceitfully easy piece of advice, because nobody tells you then when you buy low fear is so high that you feel a disaster even bigger can strike any time.
Despite that, I kept entering in the market with the same amount of money each month (250 EUR) even when the crisis started and for 2019 I am planning to put at work twice as much this amount, on a monthly basis.
I have kept 10.000 EUR of dry powder on the sideline for a while, waiting for a better moment to buy strong companies and now this moment is definitely better than it was one year ago.
I have no idea what 2019 will bring, if a deep dive or a strong rebound in the other direction, that’s why I am not feeling comfortable putting all the money I had on the side to work straight away.
I have a feeling that the prices could go down even more because we are not in the “freaking out” level seen during the recessions we had so far, so I will increase my monthly investment but will not go all out.
After all (and that was another realization that hit me hard this year) is not on the stock market where I will make the most of my money, but from my hard work and how well my entrepreneurial projects will work out.
Because of that, I am even considering a switch to a more passive investing style, buying and holding well diversified ETFs, the “standard” approach I recommend for non professional investor.
I still love doing research and discover hidden gems in the stock market that can give me a great return, but in terms of opportunity-cost, the amount of time I am spending on this activity is big and it may be better spent focusing on growing my company or studying some other skills that can bring me more money (marketing and sales, for example).
I haven’t made up my mind on that yet, I will see what 2019 will bring and then make a final decision, but for sure I will always keep a small portfolio of individual stocks for tax efficiency reasons (for some crazy reasons, it’s not possible to compensate ETF capital gains with ETF losses, why it’s possible to do that with stocks).
And, of course, I will do my best to keep that profitable, as well ;)
That’s all for this year.
As last year, it was a very long letter so thank you for all the attention and the time you put into this.
I wish you a rich 2019, full of happiness and growth.
Lorenzo
