Crafting a Winning Investment Philosophy: Strategies for Exceptional Returns

A year in review 2023.

Dear Envision reader,

This is the last post of the year! I sincerely appreciate your support throughout the year. As 2023 comes to an end, let's take this opportunity to reflect on our collective journey, examining the progress and key insights we've gathered in managing the Envision portfolio and investment performance.

Let's start with a topic that often arises in discussions with my friends: 'What is your investment strategy? Are you more of a long-term buy-and-hold investor, or do you prefer short-term trading?' Many people misunderstand that success in the stock market is directly linked to one's choice of strategy. But, I've learned that the essence really lies in one's investment philosophy. What's crucial is understanding the fundamental principles that guide your investments and how they influence your strategy. For example, Peter Lynch, a renowned investor, believed that the market often misjudges growth stocks – a perspective that would eventually self-correct. He popularized the use of the PEG ratio and based his portfolio strategy on this principle.

However, what worked for Peter Lynch may not necessarily work for you due to differences in timing, market conditions, character, technology, personal advantages and etc. Luck also plays a role in being in the right place at the right time. The goal is to position yourself such that luck is more likely to work in your favor, a strategy often referred to as getting the odds on your side. Therefore, the key is to identify what works for you and to develop a philosophy that suits your individuality. Understanding your strengths, weaknesses, physchology, lifestyle, and unique advantages is crucial. Then, you can craft a system and strategy around your personalized philosophy, one that can lead you to consistent success in the market.

My philosophy is simple targets mispriced growth stocks within market cycles to achieve tenfold returns. The goal of the Envision Portfolio is both ambitious and straightforward: to grow a portfolio tenfold, from $100K to $1M, by strategically investing in the top 1% of Bursa growth stocks. This strategy involves limiting the number of stocks to only 10 stocks, effectively managing unsystematic risks.

Central to my strategy are two key approaches: The first, (1) value investing, focuses on acquiring high-quality companies at favorable prices, especially during their growth stages. The second approach, (2) cycle positioning, requires a deep understanding of market cycles and their current status to optimize investment outcomes. As Howard Marks notes, 'Rule number one: most things will prove to be cyclical. Rule number two: some of the greatest opportunities for gain and loss come when other people forget rule number one.' I firmly believe that by implementing cycle positioning, particularly in the Malaysian stock market, investors can enhance their returns. But counter-cyclical investing is challenging as it often entails a contrarian strategy, going against the grain of human nature and prevailing market trends.

Moreover, retail investors should be aware of their natural advantages in the stock market's zero-sum game, particularly their smaller capital and greater flexibility, which often lead to insights that larger entities overlook. To increase the odds of success, my primary focus is on quality small to medium-cap companies, rich in growth potential yet often ignored by mainstream analysts. Achieving investment success involves more than just targeting specific returns; it requires a resilient system capable of adapting to market volatilities, an understanding of what we can control versus what we cannot, and a disciplined strategy that invests only when the odds are in our favor. We also have to establish a set of rules to follow and regularly review our investments in order to manage risk and emotions, and reduce bias in valuation. Below, I present the guiding principles of my investment system and also the performance of envision portfolio.