As I have learned more about investing over the past 14 years, my performance has improved, giving me some confidence. In view of this outperformance, I may hope my experience may be of use to others. First of all, this performance shows that an individual investor, spending some hours per week reading and thinking, can beat the market as well as some respected paid professionals (see below).
Personally, I did not have the opportunity to learn about investing until relatively late. It is worthwhile for young people to learn about investing for two principle reasons. First, investing in securities can secure your financial position and afford you the liberty to pursue opportunities that would be much more difficult without available funds to invest in them. Second, investing is in essence, making choices about allocating capital. In learning about how companies go about growing successfully by investing in themselves or by making acquisitions, the investor can learn how to select ways of spending his or her time which will yield the best return in investment. If your parent tells you to study hard because it will be worthwhile, that is one thing. If, based on your investment self-education, you can foresee a good outcome from making certain investments in yourself, then that is entirely more convincing.
The approach that leads to this outcome is based on a few principles. Avoid overpaying for hot stocks. Pay for companies that have a strong business and a long history of the same. Train yourself to ignore market fear, so as to buy those strong business while others are selling them. Know your businesses so you can keep in mind why your contrarian decisions are justified.
A comparison of my returns with those of some respected value investing mutual funds:
|Fund/index||Expense ratio (%)||10y (%)||5y (%)||1y (%)||Ytd (%)|
|Oakmark Select Fund (OAKLX)||0.75||8.75||22.50||32.55||11.13 (as of 6/30/14)|
|Sequoia Fund (SEQUX)||1.02||8.67||19.13||18.45||0.91 (as of 6/30/14)|
Note that mutual fund returns are before fees. The expense ratios are noted.
Of course I have some advantages relative to the commercial mutual funds. For me, there are no panicked mutual fund investors demanding that I sell at the bottom of the market in 2009. I can have an extremely focused fund. I can truly ignore the crowd of media and Wall Street with its questionable advice.
Nevertheless this performance is not bad, for an Amateur.
The above information comes simply from my account site online at Vanguard. The mutual fund and index returns are obtained via Vanguard and Morningstar respectively. As I find the time, perhaps I will provide data regarding dates of purchases, sales, and holdings, so as to provide some historical basis and explanation for this performance.
For now, I will note that the portfolio is extremely focused. There is one main portfolio and two much smaller ones. The total number of stocks is 7.