Update No. 155 – 22/03/14

The market (and EGP) continued its relatively flat start to the year this week. EGP is now up a modest 1.25% for 2014, the market is up 0.99%. As opportunity would have it, the fund has deployed more capital in March 2014 (and the month isn’t over yet) than we have in any month since November 2012.

I went a little ‘nuts’ in November 2012, in fact from July to December that year was the busiest time since the fund’s inception in terms of capital deployment, we have been steadily building cash reserves ever since. Those purchases in the second half of 2012 worked out very well I should say though, we generated around a 35% gain through 2013.

All I can really say about that is that the opportunities I saw at that time were compelling, so I deployed cash. Despite the market being ‘more expensive’ currently than it was then, I am pretty sure I’ve managed to ferret out some pretty good opportunities once again. This serves as a reminder that above all else, patience is the most important weapon in your investment arsenal. As the Americans like to say in baseball parlance, there are no called strikes in stock market investing. For nearly 18 months, all I’ve managed is to ‘bunt’ a few singles, but I’ve been letting virtually every pitch go. Well the last couple of weeks I’ve been swinging for the stands, but the fascinating thing about investing is it could be a couple of years before I know whether I’ve hit any home runs for you…

Investment is an important part of building enduring financial security. Habitually spending less than you earn, however, is an equally important part of ensuring your financial future is secure. Particularly for those that are very young, or very new to the process of building wealth, savings from minimising outgoings are more important than investment returns.

If you have $20,000 saved and earn an extremely impressive 25% return over the course of a year, you will have earned $5,000 to add to your pile. Assuming you earned $40,000 after tax in that same year and saved ¼ of that, you would have added twice your investment earnings to your savings simply through not spending all you earned.

This situation of course reverses when you start to get a substantial savings pool. If you have $1m saved and earn a far more modest 15% return, you have generated $150,000 in savings growth, unless you have a real killer job, I can’t see too many people getting even close to that by saving their salary. In fact, with the brutal taxation regime in Australia, you would need to earn $231,000 in any given year just to have $150,000 after tax, and even then you would have to save 100% of it to match your savings growth.

The preceding paragraphs are a reminder that, particularly in the early years, avoidance of waste in expenditure is probably more important than where you are invested. To that end, I would like to direct any younger readers (or those who would like some ideas about trimming their own excesses) to a website focused on living a frugal lifestyle. This website/blog I have frequented for about a year or so is run by a blogger called ‘Mr Money Mustache’ who retired nearly a decade ago at 30 to start a family. A fantastic list of all posts ever made is available here and I particularly commend readers to the most recent post. A quick reading of the comment section will uncover just how badly some people who earn good money can allow themselves to get sucked into a consumerist void and never build the wealth that should come so easily with a big salary and the opportunity of living in a first world country – Tony Hansen 22/03/2014

EGP Fund No. 1 Pty Ltd. Up by 1.25%, leading the benchmark by 0.26% since January 1^st. Since inception, EGP Fund No. 1 Pty Ltd is Up by 66.16%, leading the benchmark by 39.65% all-time (April 1^st 2011).

^{*1 after 31May 2013 dividend of 2.333 cents per share plus 1 cent per share Franking Credit}

^{*2 calculated based on dividends reinvested}