You will be able to put a value on the hours you spend running your portfolio and add it to your cost.
Marcus guessed he spent "maybe an hour a week" on his investments. Then he logged it for two weeks, every app check, every annual report page, every spreadsheet session, and the total was six hours, most of which wasn't research at all but price checks on the train, news about his stocks and tinkering with his workbook. The S$949 cost stack from lesson 12.3, The full cost stack: commissions, spreads, FX, custody and withholding tax, left out the one cost nobody sends a bill for.
This lesson puts a price on your hours and adds it to the stack. Figures are made up, apart from the cost stack from lesson 12.3, which is Marcus's.
Memory is a poor guide to time, because people underestimate small, frequent activities, like a two-minute price check twenty times a week, and overestimate occasional big ones, which is why a written log beats a guess.
For two weeks, or better a month, record every block of time spent on your investments in three columns: research, meaning reading reports, modelling, valuing and writing memos; monitoring, meaning checking prices, reading news and following results; and admin, meaning trades, statements, tax records and rebalancing. Round each entry to the nearest five minutes.
Marcus's two weeks came to 3 hours of research, 2.5 hours of monitoring and half an hour of admin: 6 hours. Multiplied by 26 for a year, that's about 156 hours, close to four working weeks. Two weeks can mislead, because results seasons and yearly reviews bunch the work, so check your annual figure against the busiest months too.
There are two sensible ways to value an hour, and each answers a different question.
The first is your after-tax hourly pay, what an hour of your work actually brings home. Marcus's made-up take-home pay is about S$84,000 a year for about 44 hours a week, so roughly S$36 an hour. It's a fair default, because it's the rate at which you already trade your time for money.
The second is the price of an hour you could actually sell: overtime, a side job, freelance work. If you could earn S$60 an hour consulting on weekends, an hour spent on Larkspur's annual report costs you that S$60. If you couldn't sell the hour at all, its price is what you'd give up instead, whether rest, family or exercise, which is harder to put in dollars but no less real.
Some people enjoy investing as a hobby and argue its hours are free. That's a legitimate view, and the answer is to write it down honestly: "I value these hours at zero because I enjoy them." Then you can see what the hobby costs you if it also loses money, and you won't mistake enjoyment for skill.
At S$36 an hour, Marcus's 156 hours cost about S$5,616 a year, about 2.8% of his S$202,000 portfolio. His money costs were about S$949, or 0.47%. Hours turned out to be about six times as large as every fee, spread and tax line combined. His all-in cost is about S$6,565, about 3.25% a year.
Now split the hours between the core and the satellite. Running the core takes about 12 hours a year: one yearly review, a rebalance and a few statements. The other 144 hours go to his four stocks, worth about S$5,184 a year. With his satellite set at 18% of the portfolio in lesson 12.1, Core and satellite: where stock picks sit next to index funds, about S$36,360, the hours cost about 14% of the satellite's value every year. For the stocks to pay for the time they take, they'd need to beat the index by around 14 points a year, and his measured edge over five years was about 0.15 points.
The hours also come in lumps. Modules 6 to 9 took Marcus through a reading log, a three-statement model, a DCF and a memo for Larkspur. He estimates that took about 40 hours of focused work. At S$36 an hour, that's about S$1,440, roughly 18% of the S$8,080 his rules allow him to hold in Larkspur, before a single hour of monitoring.
So each new stock you add has an entry cost in hours, and the smaller the position, the larger that cost relative to what it could earn. That's a strong argument for owning fewer stocks and keeping each one longer, and for not adding a stock unless the work has a fair chance of paying back.
Hours are easy to leave out, because no one sends a bill and the money never leaves your account. But the time is gone either way. A fund manager's fee pays for someone else's hours. When you run your own money, you're paying the same bill in time, and lesson 12.6, Benchmark your results against a managed fund, like for like, can only be fair if both bills are counted.
Marcus could have cut his hours sharply without changing a single holding. Most of his monitoring time was price checking, which adds nothing to a long-term decision. He set a rule to check prices once a week, and to read company news only around results announcements.
Start your own log today, with three columns for research, monitoring and admin, and keep it for two weeks before you work out the yearly cost.
Log your investing hours for two weeks, annualise them and convert them to SGD at your after-tax hourly pay.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).