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More Retrospective: My Performance vs. the S&P 500

January 19th, 2015 by 
PK

I've been an investor for a while now, but I bought my first individual stocks on 3/3/2009 - fortuitously (through luck or skill or otherwise), just 6 days before the market's ultimate bottom.  Those purchases were very successful, and all proceeded to beat the broader S&P 500 rally from that point.

Over the last 18 months or so, the individual portion of my portfolio has lagged the S&P 500 and this article is an audit of my performance, and a look at how I've done versus the, (in my opinion), beatable S&P 500 index.

Which is, of course, beating me.

Back Up a Second...

Before you dance on the grave of individual performance, for various reasons I'm not the ultimate individual practitioner... although actual audited performances of individual investors are very rare (touted stock picks on the other hand?).

For starters, I started in March 2009 - six years ago, and arguably one half of a business cycle.  You really need to track performance over an entire business cycle... at least... to say anything with reasonable confidence (annual totals are still short term, folks).

Second, I'm less than half actively invested.  Some of that is by choice (some smaller rolled over accounts I don't want to log into often, and a very old IRA I'm happy leaving alone), some of it not (529s and 401(k) being the big ones).  Funnily enough, the non-actively managed accounts are "losing" to the S&P 500 as well... since they are diversified into not-so-successful-as-the-S&P-500 markets, such as the rest of the world.

A brief note: Additionally, some of that 'active' investing is in the form of my employer, which I hold for various reasons.  I do not include those employer holdings in this audit (it would make my performance look better, for the record).

Okay, Let's See the Damage

I started getting bearish on the US's markets in roughly November of 2012, as you can see from that linked series of articles.  I currently only hold two individual securities - various forms of my employer (not counted), and PDLI, which I have owned for roughly as long as this website has existed.  That's right - the majority of my under-performance is due to cash holdings.  If there is a lesson (iffy!) in this, it is that at some portions of the market cycle an overabundance of caution can hurt you relative to your benchmark.

My benchmark is the S&P 500 Total Return index, a theoretical benchmark which tracks the S&P 500 and automatically reinvests all dividends and distributions.  It isn't perfect - real investors deal with slippage, fees, tracking errors, taxes, and the like - so this is a 'worst case' benchmark to use, but better than most other things in this respect.

I estimate that my annualized performance has been 22.08%.  The S&P 500's total return with the same buy dates is 32.24%.  I estimate this individual portion of the portfolio is 93.93% of what it would be had I just purchased and reinvested in the S&P 500!

How Did This Happen?

Like I said - moving into cash (or, more accurately, not buying anything) starting in November 2012 hurt a ton - but in the spirit of full disclosure, you'd be looking at about 22.5% on the S&P 500, so I would still be slightly down.  This is due to PDLI's weak performance since August.  (See any stock's dividend reinvested performance with our calculator).

Where Do You Plan to Go From Here?

Combine a Y chromosome with an illusion of control with overconfidence with half a cycle with lots of belief in my methodology with it's-not-my-whole-portfolio-anyway?  You guessed it! I'm doubling down and keeping the current accounts 'individual'.  I'd like to get a complete cycle in before I completely give up on this experiment.  I was outperforming as recently as mid-2013.

Hypocritically, I recommend you don't - it really is a ton of effort to even attempt this sort of a thing, in terms of books read, sites followed, and antacids taken... and, uniquely, revealing your losses to your readers (haha).  For the typical investor, index funds will suffice, and we even have a long term calculator on the S&P 500 which shows how successful that strategy is.  Expect to beat individual investors at some parts in the business cycle, lose in the down turns... just don't sell, because it's cyclical!

Do you have an individual portion of your portfolio?  Is it more or less than 50% or so?  Am I the biggest hypocrite you read?  If you were me, would you cut the experiment early or continue for a full stock cycle?  Isn't it weird how many other sites have hushed up about their performance in the last couple years?

 

 

Don't Quit Your Day Job...

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