What is it like running Recompound for 1 year
Very difficult, but very meaningful
2023 in review
Building Recompound has not been easy thus far. Key challenges that we faced this year were:
Turbulent stock market in 2023.
Uncertainty of global and domestic macroeconomics (rising interest rates, war, commodity prices, etc).
Mismatch of expectations between Recompound and clients.
We started the year by explicitly writing a blog post that perhaps was not read by a single soul (why we build Recompound) and I think it is important to revisit that motivation periodically based on my real experience running Recompound.
Why do we build Recompound?
First and foremost, Recompound exists today because we believe that the stock market is a hostile place for most. Far too many people burn their fingers in the stock market and become victim to market manipulation, neglect and false information floating around the internet.
We also believe that investing is not everyone’s cup of tea. We believe people should focus on their circle of competence — such as being a professional, entrepreneur, creative worker and other vocations — and becoming so good at this competence that others cannot ignore them.
But we also think that everybody needs to invest. This is because while Indonesia is experiencing stupendous economic growth, much of this growth is not reachable if one does not invest. To bring our society forward, growth from investments need to be distributed to more people and we aim to be the catalyst just for that.
In light of this, Recompound is committed to help people invest in a more intelligent and less risky manner so that they can achieve a greater peace of mind while having good returns more consistently.
After running Recompound for a year, I myself am surprised that our original motivation has not changed. In fact, one year of talking to clients has only amplified the urgency of what we are doing.
Okay, now the fluffy duffy but important part of the blogpost is over, how does it really like to run Recompound for a year?
I will break this down into three parts:
These are three core pillars that makes up Recompound today. Remember that our company performance is still quite strongly attached to our performance in the market. Each part contains their own ups and downs. Our team’s mission is to continuously strive to improve each pillar to ensure our business longevity.
Let’s start with investments
Investments in 2023 is full of surprises, although surprises are unsurprising in the capital market 🙂
People in 2022 expected 2023 to be the end of the world — “kehancuran dunia” — and Q4 2022 market performance was bad. So Q1 of 2023 was definitely nervy.
But we managed to gain big in the month of February all the way to July thanks to our exposure in the automotive industry. We were betting on the pent-up demand in the automotive sector that has not fully materialised after the pandemic. We were also betting on inflow to automotive sector after market participants gain big from energy stocks after the energy boom.
Unfortunately, our client base was still rather small then, so despite the gains that we saw in the first months of 2023, our revenue was alright. Still, I am grateful that they are enough to give us additional runway.
However, the second half of the year from August to November was not satisfying at all. We made the wrong guess that October would be the start of a bull market, or at least a better sideways market. We were betting that consumer spending would improve, driving up companies in the consumer sector.
But we were hit by a number of factors:
Recovery of spending is not as even out and is slower than expected.
Rising interest rates by the US Federal Reserve caused capital flight from IDX. Our index is driven largely by foreign inflow and outlflow.
IPO of large companies that significantly affected the index (IHSG). Companies owned by well known conglomerates went public in Q3 2023 and their prices kept rising. These companies’ valuation are not attractive but fund managers need to buy them because they don’t want to lose out to the index. So there is an outflow from traditionally good stocks despite their strong business earnings.
These factors caused a notable drawdown among clients who joined in July onwards. Therefore, it is likely that we will shift our strategy to one that carries very minimal downside risk. Our investment team is working hard to plan rebalancing activities for our existing clients as well as identify new opportunities for 2024.
Our clients are the bedrock of Recompound
In a hypothetical world where everybody has the time to do their investments well in a consistent manner, Recompound won’t exist. Our job is to be people’s chief investment officer (CIO). We help create and rebalance people’s portfolio and we ensure our incentives are aligned with them by only charging performance fees.
We are honoured to be given the trust of plenty high-profile customers. Especially given that we are a new entity that does not have a long record of reputation in the industry, we are happy about the overall positive reception thus far.
For me, our clients are the biggest motivator to keep working on Recompound. I am always grateful for the support, constructive feedback and pleasant collaboration that makes Recompound really fun. Meeting ups with our clients have been the highlight of Recompound. We’ve had the honour of hearing the admirable experiences of our clients in their own area of expertise — from marketing specialists, budding professionals, to seasoned entrepreneurs — many of whom went from being our clients to become our good friends. At the end of the day, we see our clients not just as customers, but long-term collaborators with whom we want to build a constructive network who can enrich one another.
Now that is the ups. The downs I experience include dealing with a group of people that consistently have the common misconceptions, as below:
With Recompound you can never lose money in the stock market
With Recompound you can expect to predict short term market fluctuations flawlessly
With Recompound you can expect quick returns (in the span of a couple of months)
With Recompound you can never make an investment mistake
If you are a client reading this blogpost, and you identify yourself having the characteristics above, we kindly invite you to cancel your subscription with us.
Why? Because at some point we will definitely disappoint when the market behaves not in our way despite our best efforts.
At some point, we will definitely make a mistake despite having a continuously refined investment framework.
Does that mean we are not confident in our investing capability? Quite the opposite, I think because our investment team is fully aware that things can go wrong, we take an extreme care in helping to manage people’s risk. Excellent risk management is, often the case, a recipe for returns.
We also have come to the conclusion that Recompound is not for everyone. We will refuse to serve people with unrealistic expectations and grossly wrong understanding of the capital market. We believe that our collaboration is a two-way street and we will always strive to attract high quality customers. Not in terms of money, but more so in terms of their mentality in investing (hint: not treating the stock market like the casino is a good start).
Recompound’s product is like a baby
Budi and I coded the Recompound infrastructure from scratch. We implemented the monitoring system, performance chart, automation tools, trade confirmation parsers, and so forth. In trying to reduce cost and deliver a good product, we have to not only stay abreast with the latest technology, but also think of ways they can be applied to our business context.
A great example is customer rebalancing. Let’s say we want to switch from stock A to stock B. It used to be the case that we would spend 3 hours+ to do a simple rebalancing for 100+ customers. This is because each customer has their own WhatsApp group. We initially had to execute and send the rebalancing information for each customer manually. That is a significant operational overhead and a huge bottleneck to scale our product.
300 hours to rebalance for 10,000+ customers? That’s a no go.
So we implemented a way to rebalance our customer’s portfolio in constant time. Meaning, once we have identified the customers whose portfolio need to be rebalanced, we can execute the rebalancing in no time.
Because our organisation has a variable income that largely depends on market performance, we have to eliminate fixed cost as much as possible. The way to do this is by using technology as much as possible because their cost is variable. To wit:
We only need to pay a lambda function on AWS every time we hit that lambda function (it is on demand)
But we need to pay a person that does a manual labor every month whether or not the business is doing well
Having a near 0 fixed cost as an organisation gives the operators, me and Budi, a peace of mind because we are not afraid of solvency issues. On the contrary, it pushes us to be more financially prudent, much more strict and careful with hiring, and be creative in using technology to improve and scale our product with less cost.
If you have read the article this far, wow you are awesome have a great day. I am grateful and confident we are closing 2023 with the right mindset. Let’s see what 2024 awaits.