[caption id="attachment_1358" align="alignright" width="210" caption="Photo by Francisco Belard "][/caption] As we draw ever closer to the end of 2008, Panzer invites you to sit down near the cosy (and imaginary!) fireplace, where the sound of crackling logs of the fire that warms your little toes and mesmerizes you with the way the light from the fireplace flickers, casting interesting shadows in his virtual living room. Panzer sips his warm 3-in-1 (reduced sugar) coffee and starts to count the hits and misses of his investments in 2008. Investment Highlights for 2008 A picture tells a thousand words, and Panzer’s journey in equity investing as well as returns from interest, dividend, treasury-bill yield is aptly shown here (minus the actual figures) of course! Panzer's Return on Invesment 2008 It can be seen that since Panzer started tracking separately capital gains and dividends (in 2005), dividend income has been steadily increasing. Panzer now ploughs money into buying blue-chips that pay dividends for increasing portion of passive income that doesn’t need too much active management. The other interesting bit about the graph is that 2008 saw Panzer eating humble pie with realised capital losses from trading. This dragged his total gains down. His gains from dividend income was big enough to offset capital losses so overall, Panzer still gained about 4%+ return on investments. This is decent but reflects how trading effectively destroyed value in his portfolio. Total gains also reflects non-dividend income such as interest from bank deposits, yields from treasury bills and an increasingly significant chunk of alternate income, returns from blog monetisation. The returns from blog monetisation was in very low 4 digits but still significant that it breached the $1,000 mark with some to spare. This would have required a capital of $100,000 yielding at 1% in Fairprice Plus Savings to achieve the same returns. However, it is not strictly passive and time and effort is spent doing so but it gives Panzer more options to grow his means. 2008 was Panzer’s worst year in terms of the returns on investment since he started tracking in 2003. It was his own “annus horribilis” or latin for horrible year. Whilst Panzer’s portfolio, or more accurately, Panzer himself performed poorly in his investment returns, he still managed to squeeze out a 4% positive realised returns. In reality, unrealised capital losses of 55% would more than wipe out the puny 4% realised returns. However, Panzer has marked-to-market his net worth and it is still positive. :) What Panzer Learnt 1. Diversification has its benefits Panzer learnt that market timing and trading is subject to the black swans that Nicholas Nassim Taleb describes in his books. He also gained more hands-on insight on how a potential black swan could have potentially wiped out his net worth. Fortuantely, there was some diversification as Panzer’s net worth is also parked in insurance policies with cash surrender values, the central providend funds as well as cash besides stocks and shares (equities). Thus, Panzer learns first-hand why you shouldn’t put all your eggs in a basket. Of course, if your eggs are NTUC fairprice $1.80 for 10, then it’s not too bad as a $1.80 loss is more bearable than a $1,800 or $180,000 one! Read more...