Last month a 33-year-old taxi driver posted a statement on social media that he has decided to retire.
He said that since he started driving a taxi when he was 22, he has been saving up every dollar he could to buy shares in HSBC Holdings (00005.HK).
After 11 years, he said, he feels he has saved enough and is ready to retire.
We can learn a lot from his investment experience.
He has been holding HSBC shares for 11 years, which makes him a typical long-term investor.
He also has spent a fixed amount on HSBC shares every month regardless of the share price movement, which is the typical dollar cost averaging approach which allows an investor to buy more shares when prices are low and fewer shares when prices are high.
He started buying HSBC stocks when it was trading at around HK$150 a share. He has pursued his plan even though the stock price plunged at one point to HK$33, sticking to his commitment regardless of the market’s ups and downs.
As of last month, he was able to accumulate 40,000 shares, with a market value of around HK$2.6 million.
That means he could receive an annual dividend payment of HK$160,000, based on the bank’s latest full-year dividend payout of 51 US cents.
Given his simple lifestyle (sleeping, sports and video games are his favorite pastimes), he reckons the dividend income from his HSBC shares will be enough to sustain him for the rest of his life.
The driver has obviously done quite a few things right. But he is also running a big risk, namely, concentrating his assets in one single investment.
Imagine had he picked stocks like Esprit Holdings (00330.HK) and Li & Fung (00494.HK), which have suffered huge declines in value and paid much less dividends, he would have to work for much longer to achieve financial freedom, if ever.
But had he betted on star performers like Tencent Holdings (00700.HK) and started buying since 2006, his portfolio would be worth more than HK$33 million now. That is 12 times more than the HK$2.6 million value of his HSBC shares.
Stability and diversification are critical for building retirement portfolios. Putting all your eggs in one basket is not a recommended approach.
The share price of HSBC slumped 5 percent on Tuesday after reporting its latest earnings.
I wonder if this guy could still sleep soundly at night.
This article appeared in the Hong Kong Economic Journal on Feb. 22
Translation by Julie Zhu
[Chinese version 中文版]
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