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?
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.
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.
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.
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
|