Reflections on Portfolio Building in 2022

Arnav Mahendra
The Catalyst
Published in
6 min readFeb 28, 2023
Photo by Maxim Hopman on Unsplash

As a student in the International Baccalaureate (IB) Middle Years Programme (MYP), I have had the opportunity to learn in unique ways that students in other programmes may not experience. One of the unique features of the MYP is the Personal Project, which is a significant individual research project that allows students to explore a personal interest and demonstrate their skills and knowledge in a chosen area. Students are encouraged to explore a topic that they are passionate about, and to use their creativity and critical thinking skills to develop a project that demonstrates their understanding of the topic.

For my Personal Project, I chose to invest in the stock market and aim for a 5% return on my investment. I chose this topic for a few reasons:

  • I wanted to explore a potential future career in the finance sector.
  • I wanted to learn about investing, which is an important part of personal finance.
  • I wanted to get a head start on building wealth compared to others my age.

The project began in July 2022 and ended in February 2023. Throughout the process, I learned a great deal about personal wealth creation, portfolio building, and the stock market. I learned a few key lessons during these six months; let’s discuss them.

Lesson 1: Macroeconomic Conditions

Anyone who invested heavily in 2022 knows about the impact of macroeconomic conditions on portfolio performance. However, as a novice investor, I had to learn this the hard way. Due to issues with the economic recovery from the COVID recession, there were numerous macroeconomic headwinds investors had to face in 2022. The main one was inflation. Inflation in the market in 2022 contributed to the negative performance of stocks across every sector because of how it impacted the amount of money a business earned. Profits were hit due to consumers’ inability to spend as much as they used to, which hurt investor sentiment and decreased stock prices across the board. This had significant implications for investors all over the world, including myself. My portfolio performance was heavily impacted by reports of inflation. For example, one of the stocks that I invested in, Costco (COST), was positively impacted by inflation because it tended to sell goods that consumers bought more of during an economic downturn. Other stocks in my portfolio fared worse, such as the tech sector, which experiences contractions when the economy is doing poorly. The overarching lesson that I took away from this was that macroeconomic conditions are one of the main factors that should influence what sector of stocks one chooses to invest in. Failing to account for general trends in consumer spending can lead to investing in stocks that consumers are turning away from in the moment. I experienced this when I invested in the tech sector. After losing a significant amount of money due to that choice, I transitioned towards the consumer staples sector, which tends to perform better during times of recession and inflation. After seeing that these stocks performed better than the tech stocks, I confirmed that choosing which sectors to invest in based on macroeconomic conditions was the correct approach.

However, I still wished that I had implemented this earlier in order to limit my losses. That led me to my second lesson.

Lesson 2: Check Your Portfolio Performance Frequently

The conditions in the stock market change every day and can impact the performance of your holdings. As a novice investor, I was overly optimistic and did not check my portfolio performance frequently enough during the first few months. As a result, I missed opportunities to sell stocks at a profit and ended up holding onto stocks for too long, resulting in losses. I learned that it is important to monitor the performance of my portfolio regularly and to have a plan for selling stocks when they reach a certain price point. This allows me to take advantage of gains and limit losses, which is essential for successful investing. Unfortunately, I had to learn this lesson the hard way once again. I neglected to check my portfolio for the entire month of December, only to discover that the value of my holdings had fallen when I next logged in and saw that Tesla’s (TSLA) stock had dropped sharply at the end of the month. If I had made a habit of checking the market prices daily, I would have been able to avoid the heavy losses I ended up incurring. After experiencing this, I made a habit of watching the financial news every morning to ensure that the performance of my portfolio was still positive.

In summary, it’s essential to stay vigilant and stay informed about the performance of your investment portfolio. Regular monitoring and having a clear plan for buying and selling stocks can help you make better decisions and avoid costly mistakes.

Lesson 3: You aren’t just investing in a company, you’re investing in everything behind it.

You might think that when you are buying the stock of a company, the only thing that you are investing in is the actual financial performance. The only things you need to take into account are the earnings, balance sheets, and other numerical values, right?

Wrong. As important as these financial performance indicators is the culture of the company. The culture of a company is just as crucial to its long-term success as financial indicators such as earnings and balance sheets.

Company culture encompasses various aspects, such as the CEO’s treatment of employees, the importance the CEO places on the company, how employees are encouraged to work, and more. Understanding these cultural factors can give investors valuable insights into the company’s potential for growth and success.

For example, a company with a strong culture that prioritizes employee well-being, innovation, and customer satisfaction is more likely to outperform its competitors in the long run. Conversely, a company with a negative culture, where employees are undervalued, or innovation is not encouraged, may face challenges in retaining talented employees and satisfying customers. I learned about this with Tesla. The CEO(the ever infamous Elon Musk), chose to focus on Twitter, a company he had recently acquired at the time. This led to a panic among Tesla investors that the man could not manage both firms at once. This led to a whopping 35% drop in the stock’s value. I learned the hard way that an investment is not just an assessment of a company’s financials, but rather an assessment of a company’s internals. After all, if an apple is rotten, no matter how red it may look on the outside, it is still inedible.

Therefore, as an investor, it’s essential to consider a company’s culture alongside its financial performance when making investment decisions. By evaluating both factors, investors can make informed decisions that lead to profitable and sustainable investments.

Conclusion

Overall, this project was a very educational experience for me. There are just 3 of the countless lessons that I learned while investing in the stock market for the first time. I am grateful to have been able to take part in this project and learn about the stock market. My plan moving forward is to continue investing through this Fidelity Brokerage Account, learn some more, and hopefully make some money along the way.

But at this stage in my investment career, making money seems like a far thought. As a novice investor, you should always prioritize learnings over earnings. The knowledge you will gain is worth far more than any money you could possibly earn.

Thanks for taking the time to read my blog post. My name is Arnav Mahendra, and I am an aspiring high schooler documenting my journey towards a career in the intersection of finance and computer science. If you would like to keep up with me, make sure to follow me here on Medium, or at my LinkedIn.

--

--