How Wrong Was I
Throwback to the Legendary Year 9 Commerce Investing Assignment
M. D. Kwak
A RITE OF PASSAGE FOR ALL THOSE SENSIBLE ENOUGH to have chosen Commerce in Year 9, is the legendary Savings and Investment Assignment. The scenario is as follows:
It’s been about three years since this task. How well did I predict the future and more importantly – should I consider a future in investment banking…
Obviously, my term deposit is not a speculative investment and as far as I know, Judo Bank (my choice of bank) has not fallen into bankruptcy, so I will assume I have made my expected ROI.
Let’s now look at my stock market investments.
I invested the majority of my $600,000 into these four shares (price as of May 2021).
How have those share prices fared so far?
BHP:
I bought $99,603 of BHP shares in May 2021, with each share priced at a bit over $50. Being the conservative analyst I am, I predicted a modest growth rate of 7 percent p.a., citing strong growth in iron ore prices, among others, for my optimistic forecast. According to that, my shares should now be worth $122,017.96, raking in a cheeky $22,414.96 in capital gains.
The reality: BHP shares are worth $44.51 at the time of writing. After some number crunching, my BHP share value now stands at $88,507.38, coming out to a solid loss of $11,095.72.
WES:
I bought $96,804 worth of Wesfarmer shares, with each share valued at $54.20. For some reason, I forecast the growth rate at 15 percent p.a. This put my capital gains at a wild $50,422.78. Luckily, I didn’t actually make a loss with this share but my gain was considerably lower. With a share value of $64.89, my total share value stood at $115,896.89 – yielding a gain of only $19,092.89.
CSL:
I bought $108,380 worth of CSL shares and predicted an annual growth rate of 17 percent (each forecast seems to be more extreme than the last). This put my capital gain at $65,202. Unfortunately, CSL did not pop off and only gained a couple extra dollars per share. My true capital gain currently stands at $2,207 (a far more modest figure than the forecast $60,000).
MQG:
I invested $110,210.72 with each share worth about $160. I may have hit the jackpot here with a single share currently standing at $191. I forecast an annual growth rate of 12 percent, yielding a capital gain of $44,627.41. Unfortunately, it appears double digit forecasts may be too buoyant. As it currently stands, my shares are worth $132,851.04, yielding a gain of only $22,640.32. Still, a profit is a profit.
Total Shares Outcome:
Combining the total share values, my share portfolio was estimated at $597,655.68 (a 44 percent gain from initial values). However, based on current stock values, my portfolio stands at $447,842.31 (a 7.9 percent gain over three years). The gain is shockingly deflated compared to the forecast, but at least I’m in the green.
Property:
1 Turro Place, Newman WA
Now, onto my investment property. I invested my remaining $135,000 into a six-bed 846 square metre property in Newman, WA. According to realestate.com, the property recently sold for $270,000 in March 2024. Going off that figure, I would have made a whopping 135,000 in profit (gross ROI of 100 percent) if I sold that hypothetical property at this time. Based on property prices around the area in 2021, I forecast the property to only appreciate in value by $35,000 – far exceeding my initial forecast (FINALLY). Based on an initial rental estimate of $650/week that would also appreciate by 2 percent, factoring in inflation, my total gross rental income would also add a sum of $103,719.20 to my lucrative housing exploits. Factoring in various one-off and ongoing fees from taxes and maintenance (summing a total of $24,253.65), my net profit after three years would be a cool $214,465.55.
A couple of takeaways:
- The Australian stock market is dead unless you either know what you’re doing or have insider information. Opt for the US instead. For reference, NVIDIA’s share price has skyrocketed by 640 percent in the past three years, and even if you stuck your money in a hedge fund, you would have seen your share value rise by 25 percent.
- GO ALL IN with investment properties (preferably isolated 6-bedroom Western Australia properties). The ROI is astronomical, not to mention the hefty rental income that is relatively steady as long as you don’t fudge your initial choice of property. Negative gearing, a perpetually strong property market and demand for housing that will only go up: all that sounds like is money to be made (of course, this opportunity is a special opportunity limited only to well-endowed Boomers or Millennials).
So overall, I would say I did a pretty good job with my cash – managing to not lose any funds in the share market (despite some questionable takes that led to wild overshooting) and making above-expected gains from my investment property. A bright future of investment banking and corporate finance awaits 🤑. I sure cannot wait to throw my every waking hour into the wondrous maze of Excel spreadsheets and (slightly) dodgy investment analysis. Maybe once that gets a bit old, I’ll move into private equity and discover its wondrous joys. Who needs a finance degree when the Year 9 Commerce course already teaches you how to make bank for your beloved shareholders (or wealthy grandad)?