Earlier this summer I found $35,000.
It was in a brown envelope, in a ditch, about a mile from my parent’s place.
OK, I made part of that story up.
The only thing I’ve found in a ditch recently was a currently valid Platinum Visa card belonging to a certain Tong Wah Tay. It was across the street from the condominium estate where I live in Singapore. Like a good boy, I called the number on the back of the card last night and had the thing cancelled and reported “found”.
But back to that $35,000. It was real. I didn’t find it in a ditch, but my wife (who rarely knows the status of her own investments) “found” it after one of her U.S. bank CDs reached the end of its term.
This morning I invested that $35,000.
My weakness is investing money in individual stocks. I’m a bit like a friend of mine who has won vast amounts of money in casinos. He keeps playing, and he knows that eventually, the casinos will have the last laugh. That said, gambling is fun for him, and buying individual stocks is fun for me.
If you’re a regular reader of this blog, you’ll know that I’m pretty conservative. I rebalance my portfolio allocation when things get out of whack, but I don’t trade stocks. Trading, in my view, is a slippery slope. I buy when things are cheap, and I rarely (if ever) sell my holdings. Read more in this article: Teacher Waits for Investment Opportunities.
I’ve beaten the market handily over the past decade, but I’m no dummy.
I’m not going to keep beating the market.
Eventually, the casino will bite me in the rear, and I’ll be forced to index everything. Only the best investors fully index. The rest of us are driven by vanity and a silly illusion.
The vast majority of my money is indexed, which proves that I have at least some potential as an investor. My wife’s account (which I manage) is in Vanguard’s total U.S. stock market index, Vanguard’s total U.S. bond market index and Vanguard’s international stock market index. I’m no genius, but I’m no fool either.
My Singaporean based account holds a Canadian short term government bond index and Vanguard’s first world international index among a variety of common stocks that (as a group) have knocked the lights out over the past decade with some lucky bottom feeding purchase strategies. (a euphemism for lucky timing)
So what did I do with that $35,000?
I wanted to prove to myself that I was evolved, and I added to my international stock market index.
Since 1999, my individual stock market picks (the stocks I’ve bought) are ahead of the S&P 500 index by 120%.
So what do you think? Am I crazy to buy indexes at all, with such a track record?
I don’t think I am. But what do you think?
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Andrew Hallam says:
August 7, 2010 at 6:01 am (UTC 8 )
@Kevin@InvestItWisely
Hey Kevin,
Long term, I don’t see that those guys have a reasonable after tax margin over the S&P 500 index. So I’m not sure if they’re of statistical relevance. Remember that an actively managed fund has to beat an index by roughly 1% annually, just to draw even with it, after taxes (in a taxable account). If the Davis funds have done that, long term, they haven’t done it by much.
If you want to see something really impressive from the intellectual village of Graham and Doddsville, check out this recently re-opened American mutual fund:
http://www.sequoiafund.com/fp-investment-comparison.htm
I’m going to suggest that Bill Ruane established this track record without luck, but with a special emotional aptitude and an education from the greatest investment teacher of all time: Benjamin Graham.
I missed out on meeting Bill, unfortunately. He was my friend’s uncle, and he passed away a few years ago. His team, however, carries on his legacy in a similar fashion. Going forward, this one will be very interesting.
Andrew Hallam says:
August 7, 2010 at 6:05 am (UTC 8 )
@Everyday Tips
Everyday Tips:
Thanks for the commendation. And I think you’re right about people doing what they’re comfortable with.
larry macdonald says:
August 7, 2010 at 7:01 am (UTC 8 )
Andrew
In some respects you have a few advantages over Buffett. For one thing, you are not restricted to investing in only the biggest and most liquid of large caps.
Kevin@InvestItWisely says:
August 7, 2010 at 8:14 am (UTC 8 )
@Andrew Hallam
Very interesting… that fund averaged 14% CAGR vs 10% for the S&P 500.
Andrew Hallam says:
August 7, 2010 at 8:53 am (UTC 8 )
@Kevin@InvestItWisely
Hey Kevin,
Considering a 4% annual advantage for the Sequoia Fund over the S&P 500 index (for the past 40 years) I suppose we could call that statistically significant. It closed to new investors in the early 1980s, which all great funds do when their assets grow to a certain point. To have sustainable outperformance, they can’t get bloated in assets like Fidelity Magellan or Legg Mason Value Trust did. It’s tougher outperform when your assets bloat. That’s part of Larry McDonald’s point about Buffett is, above.
When a company shuts funds down to new investors, it’s pretty special. You know that they have an alignment with investors’ interests, rather than with continuing to take assets from people, thanks to their track record. I believe, in the industry, it’s referred to as “Elephantitis”
Anyway, with many of Sequoia’s oldest investors dying off (most had been investing with Sequoia since the early 70s) Sequoia had to re-open the gates to American investors last year (or the year before). The big question: will their culture continue? Is there enough of Bill Ruane left in that place?
Andrew Hallam says:
August 7, 2010 at 9:08 am (UTC 8 )
@larry macdonald
Hey Larry,
You’re right. If I believe in a business, like I did with Fastenal (I’ve been buying on dips since 2004)
http://finance.yahoo.com/echarts?s=FAST
then I could put 10% of my portfolio in it and really “move the needle”. Buffett’s asset base is probably too big to do that with any company, let alone a relatively small or mid-sized one. He could buy shares in a company like Fastenal, but even if they went to the moon, it wouldn’t improve the Berkshire bottom line a heck of a lot.
That said, Buffett also has advantages I don’t have. He’s a heck of a lot smarter and more experienced than I am. I really bow down to the man. I own 5000 shares of Berkshire, so it bodes a funny question. Am I a great stock picker for buying Berkshire (I like to bottom feed on that one too) or am I just a guy putting faith in a guy who’s a better stock picker than I am—and putting faith in the idea that his successor will also be a better stock picker than I am?
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