In 1999, I joined an investment club of school teachers that still exists today.
I wrote about the club’s market-beating performance in November 2008, for a MoneySense magazine article.
I also outlined our “Invest Like Warren Buffett” philosophy in my book, Millionaire Teacher.
So how well have we done?
- In 2012, we earned 18.2% versus an equal dollar-weighted average of 13.2% for Vanguard’s S&P 500 index (VFINX) with dividends reinvested.
- In the three years ending January 1, 2013, we averaged 13.2% compared to the S&P 500’s 9.8%.
- During the past five years, we averaged 8.0% while the market earned 4.8%.
- And during the past decade, we earned 9.6% compared to 6.8% for the market.
Since the club’s inception (October 7, 1999) we have averaged 9.5% compared to an equally weighted dollar return of 7% annually for the S&P 500
The investment club’s performance service at www.bivio.com monitors our returns, while comparing it to the index of our choice.
If we invest $20,000 on a given date, into an individual stock, it assumes that we made the same investment into the Vanguard index for comparison. Most investment clubs get trounced by the market. Even the Mensa investment club of geniuses has been humbled (some would say “thrashed”) by the S&P 500.
But we’ve been lucky.
3M Investment Club versus Vanguard’s S&P 500 index (VFINX)
equally weighted with dividends reinvested
|
|
1 year |
3 year |
5 year |
10 year |
Since inception: 10/07/1999 |
|
3M Investment Club |
18.2% |
13.2% |
8.0% |
9.6% |
9.5% |
|
S&P 500 Index |
13.2% |
9.8% |
4.8% |
6.8% |
7.0% |
Do I keep my future nest egg in individual stocks because I’ve proven that I can beat the market?
The answer is no. And I’ve explained why in my Globe and Mail article titled, Confessions of a Former Value Investor.
A decade (even 13 years) is a short time duration for someone who is going to have money in the markets for the next forty years. The odds are that this club will eventually succumb to the market over the long term.
For this reason, all of my retirement money is in low cost index funds.
If you are interested in tinkering with individual stocks, however, it pays to do your homework. Keep your transaction costs low, invest in companies you thoroughly understand, and don’t trade excessively.
These investment club holdings are exactly the same companies we owned one year ago. And the portfolio is very similar, in composition, to those I listed when I wrote that MoneySense magazine article back in 2008.
Should you buy individual stocks instead of indexes?
You might want to do it with a small percent of your portfolio. But even if you have some strong short term results, be careful not to think of yourself as the next Warren Buffett.
Overconfidence, and “proof” based on short term performances could be your greatest enemy.
Current 3M Investment Club Holdings: Annual Returns Listed For 2012
Return Since 01/01/2012
|
Name |
Shares |
Market Value |
Percent of Portfolio |
Annualized Internal Rate of Return |
|
USG Corp (USG) |
2,480.0000 |
69,613.60 |
10.3% |
175.7% |
|
Berkshire Hathaway Inc Cl B (BRKB) |
2,380.0000 |
213,486.00 |
31.5% |
17.5% |
|
General Electric Co (GE) |
2,610.0000 |
54,783.90 |
8.1% |
17.2% |
|
Vngrd Msci Eafe (VEA) |
2,262.0000 |
79,690.26 |
11.8% |
16.1% |
|
Pfizer Inc (PFE) |
3,490.0000 |
87,529.20 |
12.9% |
15.9% |
|
ISHARES MSCI EAFE IDX FD (EFA) |
353.0000 |
20,071.58 |
3.0% |
14.8% |
|
Johnson & Johnson (JNJ) |
262.0000 |
18,366.20 |
2.7% |
6.9% |
|
Coca-Cola Company (KO) |
1,964.0000 |
71,195.00 |
10.5% |
3.6% |
|
Simpson Manufacturing Co. Inc (SSD) |
1,085.0000 |
35,577.15 |
5.2% |
-2.6% |
|
Wiley (John) & Sons Inc Cl A (JWA) |
720.0000 |
28,029.60 |
4.1% |
-17.1% |
|
InstaCash (KLEINCORP) |
6.0000 |
0.00 |
0.0% |
NA |
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40 comments
DIY Investor says:
January 12, 2013 at 9:51 pm (UTC 8 )
And “Overconfidence, and “proof” based on short term performances…” are easy to get in a rising market. The latter years of the 1990s convinced many that they were geniuses.
Andrew Hallam says:
January 12, 2013 at 9:57 pm (UTC 8 )
True enough Robert. Just a couple of lucky stock picks can do something similar. Fortunately, I recognize that. We made plenty of money with US Gypsum over the years (which did wonders for our returns) but the company could just have easily disappeared in 2001/2002, shortly after they filed for bankruptcy protection. There were other “great” stocks along the way that I didn’t buy, but nearly bought or would have bought if we had the cash at the time. The same kind of luck applied this way as well. Some of those would have been disasters.
brad t says:
January 13, 2013 at 8:31 am (UTC 8 )
andrew, after reading your millionaire teacher book, you got my interest, with the simplicity of your style ( with results) spoke volumes .i was wondering, if there is any difference between the etf picks ( and amounts) you made in the book are any different from the vanguard choices you spoke of in your last blog, thanks brad
Andrew Hallam says:
January 13, 2013 at 9:05 am (UTC 8 )
Hi Brad,
My last blog dealt with the S&P 500 compared to our investment club of individual stocks. But the S&P 500 is just one index, and shouldn’t be used to represent a complete portfolio. A re-balanced portfolio of stock and bond ETFs would have roughly doubled over the past ten years.
I strongly recommend such a low cost, diversified strategy.
Cheers,
Andrew
My Own Advisor says:
January 13, 2013 at 9:57 am (UTC 8 )
Great read. I’m still convinced a basket of diverse dividend paying stocks is a good investment strategy.
Some of my holding tanked by 20% last year. What did I do? I bought more
I’m now here because of it:
http://www.myownadvisor.ca/2013/01/december-2012-dividend-income-update/
As you know Andrew, outside of dividend paying stocks, the rest of my portfolio is indexed with ETFs like XIU, VTI and VWO. Always will be.
Could you continue to beat the S&P 500? I think you could, if you continued to buy and hold and monitor the holdings above and be greedy when others are fearful!
Cheers,
Mark
Andrew Hallam says:
January 13, 2013 at 10:15 am (UTC 8 )
Thanks Mark,
Being greedy when others are fearful won’t help me beat the market though. The comparisons that the investment club makes with the S&P 500 are equally dollar weighted. In other words, in 2009 when markets tanked we bought more stocks. But our tracking service at Bivio assumed that (at the exact same time, with the exact same $) we had bought the S&P 500 as well….for tracking purposes.
I think your strategy is an excellent one. But I wonder whether monitoring the account helps or hinders it. For example, the stocks in the S&P 500 (from the 1950s) are, in many cases, different to the S&P 500 stocks today. Many of the companies making up the former composite, no longer exist. Others were spun off or bought by other businesses. But the un-tampered S&P 500 stocks from the mid 50s have easily outperformed the updated S&P 500. As you know, stocks are added and dropped to the composite, giving it a turnover of roughly 5% annually.
You can read about this in Jeremy Siegel’s book, The Future For Investors.
Interestingly, Norm Rothery wrote an article for the Globe and Mail recently, suggesting a similar example.
My guess is this: If you hold your current stocks forever and do nothing, you will do better than if you monitor and adjust your account over time. It sounds counter-intuitive, but so many things relating to investing are. What do you think?
Rob says:
January 13, 2013 at 1:22 pm (UTC 8 )
Andrew getting an inheritance allowed me a bit more flexibility in creating a portfolio rom scratch than if I had I built up that money by savings alone. I decided to follow my Dad’s model in buying and hold CDN dividend stocks with one exception, my picks were based on David Stanely’s BTSX ( more on that over at Canadian Money Saver) rather my Dad’s choice of only buying DRIP stocks.
But after reading your book and this article decided to make one important change. When rebalancing each year rather than selling some holdings I will simply “move them” and use fresh capital to buy any new stocks on the list.
David has averaged 15% over 25 years and while not stating clearly I doubt he sells his holdings very often.
Rob
BTW liked your book so much I bought 5 copies for family members this year.
Andrew Hallam says:
January 13, 2013 at 2:46 pm (UTC 8 )
Hi Rob,
It sounds like you have a good strategy. Keep it up. Adding fresh money is a good idea.
And I’m glad you liked my book.
Cheers,
Andrew
My Own Advisor says:
January 13, 2013 at 9:28 pm (UTC 8 )
Hey Andrew, great reply to my comment. I just read Norm’s G&M article this morning and that totally makes sense, even though it seems counter-intuitive.
The funny thing is, I’m not planning on adding many new stock positions going forward. In fact, since many of my companies are DRIPping, they are on auto-pilot making more money every quarter and because of it I’m actually adding to my portfolio by buying more indexed products like the ones I mentioned above.
I suspect over the next year I’ll have VTI and VWO DRIPping and owned in the asset allocation I want in my RRSP, about 25% and 15% respectively.
Then, in combination with the other 25 Canadian stocks, the portfolio for passive income and indexing for capital appreciation is largely complete. The dividend income will climb $50-$100 per month based on reinvested dividends and the distributions from ETFs will buy more units and I’ll rebalance the ETFs maybe once per year; by buying the trailing index.
So far, so good
I continue to look forward to your articles Andrew!
Cheers,
Mark
Andrew Hallam says:
January 13, 2013 at 10:26 am (UTC 8 )
Mark,
Here’s a link to Mark’s article. As mentioned, it falls in line with Siegel’s findings: http://www.theglobeandmail.com/globe-investor/investment-ideas/strategy-lab/value-investing/advice-to-the-lazy-investor-be-even-lazier/article6837273/
Miiockm says:
January 13, 2013 at 1:46 pm (UTC 8 )
I am very happy to read your words of caution regarding its past successes not necessarily being an indication of future successes. It is too easy for people to assume that past growth will continue onwards into the future.
Andrew Hallam says:
January 13, 2013 at 2:47 pm (UTC 8 )
Agreed! Thanks Miiockm!
Edmund says:
January 13, 2013 at 5:01 pm (UTC 8 )
Hi Andrew, I came upon your articles and I do find it very useful. If I am a new investor to ETF and Passive mgmt of my own funds, how do I enter the ETF market? Do I do this on a mthly purchase basis till I am 100% allocated or 1-shot purchase into the ETF? Your opinion is much appreciated.
Thanks and regards,
Edmund
Andrew Hallam says:
January 13, 2013 at 7:06 pm (UTC 8 )
Hi Edmund,
What country do you live in and how much do you currently have to allocate? Also, how much will you have each month to invest?
Edmund says:
January 13, 2013 at 10:08 pm (UTC 8 )
Hi Andrew, I am a Singaporean based here at home. I would be investing 5k to 10k per mth and I have 100k odd to invest into ETFs. Feel free to give me your opinion. Thanks!
Daniel says:
January 14, 2013 at 1:36 am (UTC 8 )
Andrew, today I finished Millionaire Teacher and have bought copies for my siblings and closest friends. Thank you for sharing your approach. I am an extreme investing novice. I would like to reposition my portfolio to resemble the one outlined by you in your book. I am 35 years old and believe you would advise building a portfolio of:
-35% US Bond Index
-35% Total US Stock Index
-35% Total International Index
I have an individual, IRA and Roth. Would each account represent the same break down named above, or is the breakdown above a representation of all accounts combined? Once I get a better understanding I will be selling off my actively managed mutual funds (as you would guess, placed by a financial advisor) and replace them with your suggestions…….I just hope I can handle the tax hit from the transfer….thank you for your insight.
Barry says:
January 16, 2013 at 5:42 am (UTC 8 )
Hi Andrew
Are you still invested in some way with the 3M Club, or just tracking it nowadays for fun?
The bivio site sounds like a great way to compare against the S&P 500 by assuming that you if invest $20,000 on a given date, into an individual stock, it also assumes that you made the same investment into the chosen Vanguard index for comparison.
I’ve been looking at the Australian All Ords Accumulation Index as a comparison benchmark for my Index Portfolio, this was up 19.8% for the year to 1 January 2013
http://www.bloomberg.com/quote/ASA30:IND/chart
My Index Funds consist of
Australian Bond Index
US Stock Market Index
All World (ex US) Index
Australian Top 200 Index
* In Australia the top 200 stocks make up almost 80% of the total value of the market.
Canada is a close match to Australia in terms of sharemarket concentration with a similar mix of leading resource companies and well-managed banks.
I will check out the bivio site also..Thanks
Barry
Barry says:
January 17, 2013 at 6:18 am (UTC 8 )
The 3M Club has done well
I just had a look at Berkshire’s performance for 1 year and 5 years
“Class A shares gained 17% last year compared to the S&P’s gain of 13%. Buffett’s stock picks and acquisitions have bolstered the company’s book value more than 5000 times its value in 1960 when Buffett took over.
Book value for Berkshire shares is estimated to have reached $113,579 on December 31. That means the company has established a growth rate of 7.8% for the five years ended 2012.”
Class A shares apparently gained 17% in 2012 vs the S&P 500′s 13%
These Class A shares currently sit at around $142,964.00
Andrew Hallam says:
January 17, 2013 at 6:11 pm (UTC 8 )
Hi Barry,
The investment club has certainly done well. But I think much of that has been luck.
I continue to manage the club’s portfolio.
Andrew
Barry says:
January 17, 2013 at 9:19 pm (UTC 8 )
No disrespect on 3M Andrew, but I’m following the set and forget portfolio of the Millionaire Teacher ..happy to say with quarterly cash injections and a market recovery at present, it’s doing well
Patrick says:
January 21, 2013 at 10:03 pm (UTC 8 )
I’d be interested to know why you seem to have multiple overlapping investments? Like, why have two different EAFE index funds? Or why own both Berkshire Hathaway and Coca-Cola?
Andrew Hallam says:
January 22, 2013 at 6:04 am (UTC 8 )
Hi Patrick,
We started with EFA then caught on to the cheaper (by expense ratio) VEA and just never bothered selling the little EFA we had—leaving its small sum as a curiosity in the account. We were lazy at first, but then just decided to leave it. Yes, we remained lazy.
Berkshire and Coke? Certainly not overlapping. Berkshire is Coca Cola’s largest shareholder, that’s true, but Berkshire is comprised of roughly 100 other businesses as well: International Dairy Queen, Borsheims, Benjamin Moore Paints, Nebraska Furniture, GEICO, the list goes on and on, with most of those companies private…you can’t buy them on the stock exchange. As such, the fortunes of Coke and Berkshire aren’t entirely the same thing.
Steve says:
January 25, 2013 at 3:54 am (UTC 8 )
Hi Andrew,
I am Canadian living in Canada and I am new to index investing. I was wondering what the benefit is of using curency neutral index funds. Does it make a difference?
Thanks
Anton says:
January 26, 2013 at 2:29 am (UTC 8 )
Hi Andrew,
I recently accepted an offer to teach in an international school. This will be my first international school job (I’ll be based in Beijing) and one of the first things someone at the job fair told me was to get your book. I know absolutely nothing about investing but reading your book was a great guide. Thank you!
One question I have is about tax friendly investments. It seems one major difference between actively managed mutual funds and index funds is taxes. You wrote that the index investor is bale to defer paying tax on gains and pay them when he or she eventually sells the fund. Would these taxes later on eat up a HUGE chunk of the gains when the person is ready to sell the fund? I imagine a 65 year old who spent a lot of time building up his/her portfolio into a huge amount would not be able to take all of it because of taxes. I met with an adviser the other day and she suggested I look into Indexed Universal Life Insurance. Are you familiar with this product? From what I understood during my conversation with her–it seemed like this product would still invest in Index funds like you suggested but the gains would be tax free. SOmeone with this product could take out cash value untaxed. I still don’t have the proper lenses to see the cons of this product but based on the little I know, it seems like a good product for retirement. I would love to hear your thoughts about this?
Thanks!
Andrew Hallam says:
January 26, 2013 at 8:09 am (UTC 8 )
Anton,
I’m really glad you found my book helpful.
I need to stress one VERY important thing, and I am very glad you wrote to me. Do not buy this Universal Life Insurance product!
These is called a variable annuity, also known as an insurance linked investment product. The international teaching circuit is filled with silver-tongued salespeople trying to sell these products, and they are far worse than the actively managed mutual funds I mentioned in my book!
I wish we could stamp these crazy product salespeople out of the international scene, but because they pay commissions so lucratively to salespeople, these products will always be peddled.
For an introduction to what variable annuities are, and why you should avoid them, please read this post: http://andrewhallam.com/2011/11/zurich-international-and-friends-provident-should-you-invest-with-them/
Andrew Hallam says:
January 26, 2013 at 8:11 am (UTC 8 )
Anton,
I have a question for you: what’s your nationality?
Knowing where you are from can give me an idea of the kind of portfolio/brokerage you could open from China.
Andrew
Anton says:
January 28, 2013 at 9:25 am (UTC 8 )
Hi Andrew,
Thanks for the message. I am American. Any advice you have as to what I can open from China would be much appreciated!
Anton
Andrew Hallam says:
January 28, 2013 at 9:35 am (UTC 8 )
Hi Anton,
You’re in luck. As an American in China, you could use Tony Noto’s services. He’s an absolute gentleman, and brimming with integrity. Read through my interview of him, and if you are serious about opening an indexed account with a guy who could guide you on tax matters, retirement planning etc, give him a shout. Americans in China are very fortunate to have this guy around. No such advisor (that I know of) exists in Singapore. This is going to sound a bit strange, but I urge all of your U.S. based Chinese friends to read this interview. Most of them are being seriously ripped off, and here’s a way out. Don’t even tell him I sent you!
http://andrewhallam.com/2012/11/tony-noto-shanghai-china/
Please keep me posted Anton.
Andrew
Matt says:
January 28, 2013 at 6:24 am (UTC 8 )
Hi Andrew,
I finished reading your book about a month ago and I loved it. I’m 27 and got into an actively managed mutual fund back in September but now I want out. I hardly have any capital, but I’d like to start dollar cost averaging into the TD e-series funds which you suggested. However I’m not sure where to start. Do you have any suggestions? Should I open an account with Qtrade, Questrade…? and buy into your suggested portfolio? I don’t have any experience either with any online broker systems. As well when should I re-balance? I think it would be great to have some kind of practical step by step instruction manual on how to actually implement and set up your investments. I’m currently stuck and don’t know where to go from here except that I’m sold on passive investing. I’d appreciate any suggestions. Thanks a million!
Andrew Hallam says:
January 28, 2013 at 6:36 am (UTC 8 )
Hi Matt,
If you set up a TD Waterhouse self-directed account, you can purchase the e-Series funds through it. However, you can’t buy e-Series funds through any other brokerage.
This might be a helpful resource for you: https://w1.buysub.com/pubs/MH/RMP/store_pfm_guidetoportfolio_995_2012.jsp?cds_page_id=121816&cds_mag_code=RMP&id=1359325942951&lsid=30271632229046331&vid=1&cds_response_key=P28AAKGA10
It’s Dan Bortolotti’s book on couch potato investing for Canadians and he has a step by step process on how to open a brokerage account and make purchases of ETFs if you would rather take that route.
Hope this helps.
Andrew
Ken says:
January 29, 2013 at 3:44 pm (UTC 8 )
Hi Matt,
Maybe I can shed some light into your situation. I’ve been using e-Series funds for years and have helped friends and family set up their e-Fund portfolios.
As Andrew mentioned, you can only get e-Series through TD Waterhouse (brokerage) or TD CanadaTrust (bank).
TD Waterhouse has minimum balance requirements to get the account administration fees waived. For the Basic RSP account (I’m assuming you’re looking to open a registered account) you need a minimum of $25,000 before they waive the admin fee. If you’re under $25,000, the admin fee is $25 a year. The Self Directed RSP account has the same minimum balance requirement but the admin fee is $100 a year if you’re below the $25k balance.
If you have under $25k to invest or if you’re just starting out and want to build some experience before moving onto a brokerage account, you might be better off getting a mutual fund account at TD CanadaTrust, then converting it to an e-Series account afterwards. Unlike TD Waterhouse accounts, there are no minimum balance requirements. If you get an advisor that knows about the e-Series, it’s possible to do it all at once. If not, you can open the mutual fund account at a TD branch, then download the e-Series conversion documents at home, fill them out, and send them in.
Ken
Ken
Matt says:
January 30, 2013 at 12:26 pm (UTC 8 )
Thanks Ken!
I had a look at the TD mutual funds and e-series is offered. My question is, are there any advantages to having a Waterhouse account? or can I achieve what I want without having one? I simply want to replicate the portfolio outlined in “The Millionaire Teacher”, and dollar cost average into it twice monthly, as well as re-balance it every so often.
I assume, like the book mentions, that getting into Vanguard ETFs and the like is only worthwhile when your assets total over $120,000? I guess I’m asking is it good strategy to stay with the e-series until reaching around the $120,000 mark?
I’m still trying to decide on the asset allocation of the portfolio. I could go 25% Cnd Bond, 25% Cnd equity, 25% US equity, 25% International equity, but I’m willing to be riskier unless you think it’s wise to keep that 25% bond so I can sell them off and buy more equity when the market goes down (only when it’s really down).
I really really appreciate all the help.
Thanks again,
Matt
Ken says:
January 30, 2013 at 2:07 pm (UTC 8 )
Hi Matt,
Glad I could help.
If you’re looking to use just e-Series funds, there is no difference between using a TD Mutual Funds e-Series account vs a TD Waterhouse account. The index mutual funds you would buy are exactly the same. In fact, if you are considering dollar cost averaging every two week, it’s probably better to do so through a TD Mutual funds account because you can set up a preauthorized payment plan that automatically buys the funds for you; your plan is exactly what I did when I started with saving and investing. If you don’t bank with TD you’ll have to find out how this would work with a bank account at another financial institution but I think it would work just the same as if your bank account is with TD.
As for risk, that’s something only you can answer. Everyone has a different risk tolerance. What I can suggest is trying to find a website that will help you assess your risk tolerance. You actually have to fill one out with the advisor if you open up a TD mutual funds account.
When your portfolio gets big enough, moving in into ETFs will save you a lot on the MER. Having said that, I think e-funds still have a place in large portfolios for people that just don’t care to or fully understand how to trade ETFs. E-funds are super simple to buy and with only 4 funds making up the global couch potato portfolio, the portfolio is easy to manage.
Ken
Andrew Hallam says:
January 30, 2013 at 4:56 pm (UTC 8 )
Thanks so much Ken. I’m thrilled that you’re sharing what you know on this blog. Thanks for helping out!
Andrew
Barry says:
January 30, 2013 at 6:45 pm (UTC 8 )
hi Andrew
maybe you need a forum on this site ;o)
Ken says:
January 31, 2013 at 2:37 am (UTC 8 )
Hi Andrew,
I’m more than happy to be able to contribute!
Keep up the good work!
Ken
P.S. I recommended your book last summer to a good friend who teaches at an international school in Manila. He throughly enjoyed your book and has moved to a passive investing strategy. As luck would have it, the basketball team he coaches at his school is suppose to be in a tournament at your school this year. Talk about a small world!
Andrew Hallam says:
January 31, 2013 at 6:44 am (UTC 8 )
Hey Ken,
I asked about your friend at 6am when I bumped into a PE teacher from our school taking his dog outside for its morning business. Is your friend’s name Kerry? I’ll keep my eye out for him.
Ken says:
February 1, 2013 at 2:35 pm (UTC 8 )
Hey Andrew,
Yup, that would be him – spelled Carey though.
When you see him, say hi for me. HAHA.
Ken
Daniel says:
January 30, 2013 at 11:20 am (UTC 8 )
Andrew, my IRA is solely composed of FFFX 2040. Do you recommend liquidating this and replacing with a Vanguard Target Fund you reference in Millionaire Teacher? Thank you
Scott says:
January 30, 2013 at 11:36 pm (UTC 8 )
Hi andrew
I am looking at Swiss quote for investing in an international bond etf, world stock index and UK stock index (I am UK). All seems good with regards to my eligibility to join etc but I can’t make heads nor tail of their fees.
Please can you or anyone have a look at the link below and tell me whethe the fees are good based on what I am looking to invest (1000 GBP a month).
http://www.swissquote.ch/sqw-static/trading/fees/fees_private_clients.jsp
Many thanks for all hour help
Scott