Ten years ago I figured I could beat the market.

Full of optimism and naivety, I used the formulas espoused in a number of Robert Hagstrom’s Buffett books

As well as the Buffett “systems” espoused by Mary Buffett and David Clarke:

Buffettology: The Previously Unexplained Techniques That Have Made Warren Buffett The Worlds Most Famous Investor 

Brian McNiven: A Wonderful Company At A Fair Price  – (& reviewed by the Australian Investors Association)  

Timothy Vick:  How to Pick Stocks Like Warren Buffett: Profiting from the Bargain Hunting Strategies of the World’s Greatest Value Investor

Not to mention Lawrence Cunningham’s compilation of Buffett letters: The Essays of Warren Buffett: Lessons for Corporate America

Beating the market would be easy, I figured.

My investment returns then reinforced what I thought—beating the market was doable. I was doing it.

Publishing an article in MoneySense magazine, in 2002, I wrote about how to invest like Buffett. And I was supremely confident. What added to my confidence was the stock list I put together of “Buffett-like buys” as well as recommended entry level prices. I laugh at the “exactness” of it now, but anyone following the advice would have done reasonably well a handful of years after I penned the piece, Patience, patience. 

The investment club that I run would have solidified my belief (at least you’d think it would) that I had some kind of talent.

With 100% equities, we’ve beaten the S&P 500 by more than 5% annually since 1999, despite, at one point, losing an entire 12% of our portfolio through a stupid private venture that I convinced the club to make, discussed in my post: I’ll Show You Mine if You Show Me Yours! 

And even that year, we beat the market, despite having a 12% deficit, no thanks to my stupidity.

Via email, I bombarded MoneySense Magazine’s founding editor, Ian McGugan, with every trade I was making for years, until he asked me to take the story public. …read the article

If we beat the S&P 500 this year, it will be the eighth year of doing so in a row.

Checking our 12 month return (as of today) also has us ahead of the S&P 500 index. This full equity portfolio is up 16.4% from June 2, 2009 to June 2, 2010, compared to 14.4% for Vanguard’s S&P 500 index. 


 IRR

 Portfolio Value

 Maniacle Members of the Mausoleum

 16.4%

488,009.88

 Vanguard 500 Index Fund (VFINX)

 14.4%

 479,956.33

 (Using prices from market close for 06/01/2010) IRR Portfolio – The dollar for dollar tracking is courtesy of the online service at: bivio.com.)

I’ve put my own money in the same holdings as the club, but because I can take advantage of my bond allocation, I’ve beaten the investment club’s returns, as I’ve sold bonds during downturns to buy cheap stocks. Having 40% of my money in a bond index hasn’t hurt. (Note—all of my international equity exposure is indexed)

Now I’m going to tell you what I really think of this:

LUCK

OK—I believe that the markets are mostly efficient, and that some really bright and lucky people can beat the markets if they keep their costs down, but there are also people with long, market-beating track records who can thank lady luck, rather than their stock-picking ability.

I’m one of those guys.

And every year, I view myself as less “gifted” in the area than I thought I was the year before. Success is supposed to breed confidence, right? Then why aren’t I confident? What do I know that I don’t know I know? (Now that sounded like Gertrude Stein, didn’t it?)

And what about you?

How do you personally feel about beating the market? Is it really doable over the long term?