How to invest in stocks as a individual investor (An Inconvenient Truth)

Analysis of Equity Investment in South Korea for 11 years)


Human memory does not remember very much insufficient. There are many things you didn't realize just passing by. Since 2005, for up to 11 years, what has happend in Korea's stock market? we do not know than you think.

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What is most hot stocks 11 years? Who can answer is not much. What would the hottest stocks last 10 years? Some companies would have the most growth? Without analyzing the past is not unreasonable to predict the future.

First, how much KOSPI Composite Index rose?

<KOSPI INDEX returns>

KOSPI showed a little more than an approximate 100% return.  896pt at1 January 2005 to 1961pt at December 2015. Except for 2008, it has grown steadily without big volatility.
Of course, since 2011, it has been moving sideways.


How about KOSDAQ?



                                           <KOSDAQ INDEX returns>

KOSDAQ showed a little less than an approximate 100% return.
from 383 pt at 2005 to 682 pt 2015

So how about looking into the result as a single individual stocks?

First place of honor was occupied by Cosmax BTI. Awesome return 7312%. It showed that 41 stocks shows more than 2000% return for 11 years. It can be considered the jackpot stocks. In approximately the industries showed the largest growth last 11 years are cosmetics, medical, information and technology businesses.

People who really have insight in 2005 might have know cosmetic companies and medical companies in Korea expected to grow. but it is very difficult to know and expect.

However many people can know that ICT(information communication tech) companies could be expected to grow. after 2000, high-speed Internet penetrate out life fast and then our life was going to change.

These changes in our life change its corporate value, but share price can't reflects this in a day. While constantly check the earning performance, stock price rise over the long term. Catch this change, invest long-term in these companies, individual investor can also get a great return. In fact, long-term investment can be done easily because individuals invest their money not other people's money

<The list of companies over 2000%>

(Source : QuantiWise)
* If you click this image, you can see original image

it is interesting result of distribution of returns

Huge fat-tailed, positive skewed graph comes out. When the more than 500 percent spread out, it comes out incredibly long right tailed one.

The more than 500% is more than 300 stocks, more than 400 if you look over 400%
this is greater than approximately 20% of the entire companies. A higher rate than thought.

If  as a percentage, this person who earn money from stock investing should be much larger than people who lose money. rich man from stock investment should also have two people over 10 people

But what about the reality? Clearly, much lower than this figure. people who have lost are more than get money, What is the reason?

The reason is that the short-term investment. stocks that more than 2000% for 10 years have shown sharply up and down. Very large volatility stocks are more than low volatility to rise steadily, often rapidly reflected in the share price to rise and falling. the short-term investments is not easy to cope with this volatility.

What is this, how to hedge? One of the ways to bring the portfolio. However, the number of stocks greater that diversify the volatility, the lower expected returns. Institutional investors usually have to choose this method. The funds turnover rate is usually over 50% to 100%, even over 100%. therefore Duration of investment is average 0.5 years to two years. This is because the large gap between market and funds make fundflow out. in other workd, it is not sold. So it is difficult to get high return form fund. A low vol - low return.

The second method is a method for hedging a time. although a few stocks, you can get low volitility by hedging using long time.  This is the way that private investors can do easily rather than institutional investor.

Consequently, if private investors want to get the jackpot in stocks should invest a long-term investment in a small number of stocks. 

chance to choose jackpot companies for the last 11 years was about 20%. A higher probability than you think. 

But what percentage who invest long term investment like 10 years ?  Well I do not know well. Will is 1% of the total private investors?. 

If long term investor is 1%, therefore individual investors who get jackpot is approximately 0.2% ( 0.2 * 0.01 = 0.002) 2 people among 1000. 

The problem is that individuals are more difficult to invest long-term than picking good companies. if a man get a job, and then he have to buy cars and then he have to marry, buy a house etc. This is the dilemma. Like Life