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Saturday, January 29, 2022

How did your investments perform in 2021?

2021 was a year. Bitcoin reached its all-time high. The S&P 500 and NASDAQ 100 reached their all-time highs. The US inflation rate rose to 6.8%, the highest in 39 years. Nigeria’s inflation rate flirted with 20% on a few occasions.

Year-till-date, the UAE ETF returned 51.8% to its investors (best performing country ETF), the U.S ETF returned 27.1% and the Nigerian NGE ETF returned a disappointing -11.4% to investors. We saw the rise of Tesla, we saw the collapse of the Turkish Lira.

Some Nigerian startups achieved unicorn status and series of funding, some got hamstrung by regulatory overreach and the pandemic made it difficult to attract funding.

So, with all these events, how did your investments perform?

While writing this article, I decided to adopt a casual, conversational approach to simplify your investment performance – but before we move forward let’s do some personal retrospection.

On the quest to make money, we encounter lots of micro “investment opportunities,” some good, some bad, so let’s reflect on some common investment decisions.

  • Did you borrow money to invest? Did that work out well?
  • Did you invest in Ponzi schemes? Have they paid you?
  • Did you take funds out of your investments for something that wasn’t worth it?
  • What was your biggest investment regret? What was your best investment decision?
  • Did you ‘FOMO’ or ‘YOLO’ into any asset or stock? How did that pan out?
  • Did you invest in cryptocurrency or a crypto project because of peer pressure? Did that work out well or you got rug-pulled?
  • Did you trade Crypto Futures? Did you overleverage and attempt to use 100x? If you did and can still read this – I am happy you are still alive.
  • Did you angel-invest in a startup? Is that startup gaining traction/funding or has COVID affected their operations?
  • Did you buy land? If yes, have the real owners collected it, or is it still yours?
  • Did you listen to Forex marketers and subscribe to monthly “tools and signals” that can time the market? Did those signals work?
  • Was the Telegram or Discord group you joined for “financial advice and tips” worth it? Were you better off after?
  • Did you take financial advice from some random person on the internet? Do you regret it?
  • Did you earn money while you were sleeping or did your investments not allow you to sleep?
  • Did you invest in yourself? A new certification or education that boosted your career and employability chances?
  • Does sports betting still count as an investment or you’ve realized it’s not?
  • Or did you not invest at all and go with the “cash is also a position” principle and avoid all risk?

If your answers to these questions don’t leave you with a sour taste in your mouth, then well done. If it did, it’s a learning curve.

But the bigger question is how do you know your investments performed great?

“The logical way to know if my portfolio performed well or not is by its returns – price based and income-based returns,” says Esosa Idahosa, a CFA charter holder and an investment professional.

She added that the term “great” is subjective.

“For me, ‘great’ can mean that my portfolio doubles so I have enough to pay my rent and fees; “great” might also mean my portfolio’s returns beat Treasury bills, bonds and stock indexes e.g., the S&P 500, but the general rule of thumb is your returns must beat inflation.”

In this context, if you invested in Naira-denominated assets, your returns should be over 15-20% (inflation rate) for you to classify it as great. If you invested in dollar-denominated assets, your returns must be over 5-6%. If your investments fall below the inflation threshold, you get negative real returns and that’s fine compared to auto-devalued cash.

In investing, it’s not about where you start but how you finish. One of my favourite tenets in investing is what investors call “investment horizon.” An investment horizon describes the time period an investor sets for a particular investment. Want to invest in risky stocks? You have to have a longer horizon just in case the investment does not yield your desired returns in the early days.

It is very possible you do not have any objectives for this year as you are invested for a longer period. But as Milton Keynes says, “when the facts change, I change my mind.” Have the facts that gave you the conviction to invest in a particular asset changed? Do you want to take your losses or still hold? Remember, a floating loss is not an actual loss till you exit the investment.

There are loads to unpack when understanding investment choices and performances, but the end justifies the means. The end in investing is “returns.”

You can do Technical analysis, Fundamental analysis, you can seek Alpha and find Beta. You can calculate the Sharpe ratio, apply the Black-Scholes model, and read Bloomberg and some lad will buy and HODL Shiba Inu coins and tweet “WAGMI” with those rocket emojis and outperform your portfolio by a country mile.

In this new age of money, the process seems to be overrated. In investing, it’s whatever rocks your boat as long your boat does not sink. If you did not do well this year, don’t be beat-up. Happens to everyone even Jim Simon’s Renaissance Technologies.

On a side note, a longer time horizon helps everything. Bill Gates once said, “It’s good to have a conversation with your older self.” If you are 30 years old now, what will your 50-year-old self wish he/she had done? Keep investing for your older self and the returns will be worth it.

Now, close your charts and enjoy your holiday, we meet again next year!

This Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained on this site constitutes a solicitation, recommendation, endorsement, or offer by the author or any third party service provider to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.

Michael Maren
Former marine biologist who likes to spend as much time in the tropics as possible, due to a horrible time I once had in Alaska. Brrrr.

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