My best investment so far
Is performance everything when it comes to investment? In this article, I’m going to tell you why I might prefer 10% over 400% returns.
I started to invest my money in 2016. Since then, the stock market has returned around 17% annually. So 10,000 francs invested would have compounded to 24,000 today.
But this isn’t my best investment. Because I didn’t make that investment. Back in 2016, I didn’t invest my money in a S&P500 index fund. Although buying the index had been a great investment in the past, I couldn’t shake the feeling that buying Amazon and Apple and Microsoft at crazy valuation was a poor choice. Sooner or later, the stock market was going to collapse.
Five years later, the evidence has shown that I was dead wrong. Not only did the index’s returns crush my own strategy but if the index does crash eventually, it is very unlikely that it would return back to the levels of 2016, because it would need to lose around 40%, which isn’t unheard of but still very unlikely.
I’ve always preferred individual stocks for the bulk of my portfolio because I feel that it gives me a better overview. I like to know that my money is invested in good companies that I understand. Even though I lose some performance, I sleep better at night. So what about those individual stocks?
While I’ve made a lot of poor choices (maybe I’ll post an article on those one day…), I’ve also made a few… well… OK choices. Here is my most profitable one: I bought some LVMH (the largest luxury conglomerate in the world, owning from Louis Vuitton to Dom Perignon Champagne) at 250 euros a share. Those shares trade around 650 euros today. That’s a 150% return, give or take. Not too bad, considering it was made over the last two and a half years. But this isn’t my best investment.
Alright, enough teasing. My best investment so far has been…
YES, a Lego set! I bought it for 50 euros in 2016 from the store and left it sealed. Now, it sells for… 200 on the secondary market.
Apparently, Lego is still selling some on its Amazon store for… 300 euros!
Assuming that I could sell mine for 200, that’s a 400% return. This has been my best investment so far, in terms of percentages.
But here’s the problem: while 400% is an impressive return, I would only earn 150 euros if I were to sell it today. Well, you might say, that’s because I only bought one set. Fair enough. But let’s assume that I decided to allocate 10,000 francs to this Lego set back in 2016. That’s… 200 sets.
How does one go about buying 200 lego sets? You can only buy 5 from the lego store and I’m assuming each physical store only has around 10 in stock. So I would need to loot around 20 lego stores to get my 200 sets. I don’t even know 20 Lego stores! That’s at least a few days of work, plus lots of gas expenses.
But assuming that I would get them. That’s still 200 sets that I would need to wrap in plastic and store in my basement. 200 sets that I would need to relocate when we moved. Each set weighs 1kg so that’s 200 kgs of Lego. Almost 1 cubic meter worth of bricks.
And then, I would need to work very hard to sell them. It’s not like I can sell the 200 all at once. I would need to sell them individually. I would need to create ads on Ebay or Ricardo. Build seller credibility there. Entertain low-ball offers. Answer questions. Go to the post office every other week to send a package. That’s a lot of work.
The issue with investing in physical objects (Lego, Pokémon cards, wine, etc.) is that it’s very hard to scale. And it’s difficult to make significant returns unless you can scale.
My LVMH shares have only appreciated 150% but it was 2 seconds to buy them and it will be 2 seconds to sell them. I could have invested 1,000 just as easily as 100,000 euros. Paper assets have the great advantage of being scalable. Which means that anyone can get richer with a little or a lot of money.
If I had to summarise this article is one phrase, it would be: performance isn’t everything. Performance without liquidity and scale is actually not very useful. I would rather earn 10% on 100,000 than 400% on 50.