Jason’s dad was restoring a 1957 Corvette.
It took him years, but by the time he finished it, Jason was able to take the car to his high school graduation.
Less than a year later, Jason’s dad sold the car. I never understood that. How could he sell something that he spent so much time building?
It wasn’t about the money. As he explained to me at the time, the fun was in building it, not in possessing it.
I can’t claim to be that handy. Last night, a bulb in our bathroom went out and I crushed it while trying to remove it. By the time I grabbed a broom, my wife had taken out the bulb’s broken remnants, and replaced it with a new one.
I’m not useful around the house.
But I did handily stockpile $700,000 in individual stocks. I also had an international stock index and a bond index, creating a total account value well into seven figures. But the stocks….they were lovingly added over years of painstaking research. And they were worth—alone—about $700,000.
That said, on January 20th, 2011, I sold every single one of them.
No, I wasn’t trying to time the market, expecting it to drop. I just came to the conclusion that over the long term, my stocks would likely lose to a bunch of indexes.
Pride told me to keep the stocks. But my head told me to sell them, in favor of a total stock market index.
I had to be honest with myself.
If my individual stocks lost to the market index by just 1% per year over 20 years, I would be giving away nearly $400,000 to my pride. That’s the compounding difference that $700,000 would have over 20 years, adding (or subtracting) a single percentage of interest per year. You may be suggesting that I could beat the market by 1% per year, and have a $400,000 bonus. But think about the odds of that? I did. And the odds aren’t great.
I vacillated over the stock selling decision for years. And when I finally decided to go for it, I had to do it quickly. Some of my fellow finance bloggers suggested that I was impulsive, while others commended the move.
My wife, however, was very upset.
Maybe that’s how Jason’s mom felt, when she came home from work and found that her husband had sold his Corvette.
For one week, I felt hollow.
I knew that it was the right decision, but my wife didn’t support it. She did drop the issue, however, when she saw how much it affected me emotionally. I’ve cried three times in the past fifteen years: when my dog died, when I felt overwhelmed by cancer, and when I sold those stocks. OK, I didn’t weep like a baby, but a tear came down when my wife leaned into me for selling them. She didn’t care about the money itself. But she saw how much effort went into building my “Corvette”.
I didn’t buy stocks like the average person.
I knew that, and she knew that. If I was interested in a business, I ordered ten years of annual reports, then read every word, starting with the juicy stuff at the back (lawsuits, back taxes owed etc) Data like dividend increases, sales increases, net income levels…they were just a starting point. I took ages to make a stock buying decision, and I typically bought my stocks when nobody else wanted them.
Only once, during the past decade, did I gamble on something silly.
I bought AIG shares in March, 2009—believing that the government wouldn’t let it disappear after it took such a large interest in AIG. I made about 300% on the shares. But that was peanuts. I invested a tiny amount.
In contrast, my largest holding was a huge commitment (Berkshire Hathaway) worth $363,853.56, according to the sale transcript I have in front of me.
I never bothered to really look back.
I never bothered to see how those stocks would have done if I had held onto them. I never bothered to compare them to the U.S. index that I bought with the proceeds.
But let’s have a look, shall we?
I sold 4,500 shares of Berkshire Hathaway, at $80.89 per share. The proceeds went into the U.S. stock market index (VTI)
If that $363,853 were invested in Berkshire Hathaway today, it would be worth $321,165.
Putting that $363,853 in the U.S. stock index gives it a value of $349,299 today, including dividends.
The U.S. index is down 4% including dividends, since January 20, 2011. How about my other former holdings?
I’ve used Morningstar to compare prices, and I’ve estimated the dividend impact:
AIG … (-45%)
Fastenal … +10.2%
Johnson & Johnson … +4%
Coca Cola … +10.6%
Microsoft … (-7.8%)
Pfizer … +3.1%
Simpson Manufacturing … (-11.3%)
TJX Companies … +15%
WalMart … (-2%)
Royal Bank of Canada … (-4%)
As you can see, seven of my eleven holdings would have beaten the index.
Because there was such a minor amount invested in AIG, you could suggest that seven out of ten of my previous (serious) holdings beat the market since January 20th.
Selling Berkshire Hathaway at $80.89 and buying the total stock market index with the proceeds has me roughly $25,000 ahead of where I would have been.
But holding Coca Cola and Johnson & Johnson, instead of the index, would have given me about $14,000 more (if I still held the stocks).
Without getting into comparing every stock’s weighting, I’m going to guess that my portfolio would be slightly larger today, because of my switch into indexes. Having said that, my largest previous holdings (other than Berkshire) have all beaten the market since January: Coca Cola, Johnson & Johnson, Pfizer and Fastenal, while the Royal Bank (of which I had $60,300 invested) has kept pace with the market.
As we all know, however, short term comparisons are meaningless.
The bottom line is this: Do I feel good about having a fully indexed account? Yes. And that’s all that matters.
How about you? Do you have a higher percentage of your assets in indexes or individual stocks?