Performance Update (Day 1672): Why I’ve Outperformed the Markets

My main goal was to build an investment and cash portfolio of $1,120,000* in 1500 days**, starting from 1/1/2013 and ending in February of 2017. I made my goal last year and my 1500 Days are over, but in the interest of openness, I’ll continue to share my numbers.

Why I’ve Outperformed the Markets

I’m a geek at heart and have always been obsessed with technology. When I started my first job way back in 1998, I started buying tech stocks. I got burned in the dot-com crash of 2000, but that didn’t phase me.

Today, four stocks make up almost $500,000 worth of my portfolio: Google, Amazon, Facebook and Tesla. I bought Google in 2004 (IPO) and the rest in 2012.

Traditional companies like Walmart or Exxon are easy to understand. The former is a retailer and the latter is an oil company. Easy. No further information required.

Technology companies are often complex and misunderstood. Consider my four holdings:

  • Google: You know it as a search engine, but it’s really an advertising company. Google also has the most popular phone operating system in the world (Android), Maps, Gmail, YouTube, a browser (Chrome) and computers with a chrome based operating system (Chromebooks). All of these products help drive ad sales. And if that isn’t confusing enough, Google is also working on autonomous cars and conquering death.
  • Amazon: Does anyone shop anywhere else online? No. But Amazon also offers market leading cloud services in Amazon Web Services, The company is expanding into delivery (some of it with drones), and even retail stores (gasp!).
  • Facebook: This is a social network on the surface, but similar to Google, an advertising company underneath.
  • Tesla: On the surface, Tesla is an auto and energy company. Under the covers, it’s a battery business and software (autonomous driving and battery management) technology are its real assets.

Technology companies are different from others in their potential to disrupt traditional businesses. One needs to look no further than the empty malls all over the United States to see the monster that Amazon has become. Google and Facebook are taking advertising dollars from TV and print. Tesla is disrupting traditional automotive and energy companies simultaneously.

All of this has worked out very well for me. Here are how my picks have performed since I started the blog in 2013:

  • Tesla: >1000%
  • Facebook: >500%
  • Amazon: 301%
  • Google: 171%

The green line at the bottom is the S&P 500.

For comparison, the S&P 500 has returned about 72% with dividend reinvestment.

Why I’m an Index Investor Now

Don’t take this to mean that I support stock picking because I don’t. Technology is volatile and today’s disruptors will be disrupted tomorrow. Nokia? Nortel?? RIM??? I’ve been successful for less than two decades, but I plan on living for at least five more decades. Will anyone know Google or Facebook is in 40 years? Or even 20?

No empire lasts forever. And while it was easy for me to see what these companies had loads of potential, it’s much more difficult to predict when they’ll fall. It will be obvious after it happens, but almost impossible to predict beforehand. The person with the product idea that will bring Facebook or Tesla down has already been born.

And while these four stocks have done well, I’m far less than perfect. I sold my Apple stock right before a huge run-up. Ooops. But remember that Apple too will be disrupted. The technology that will replace phones (Apple’s biggest profit driver) is augmented reality (AR) and you will all experience it before the decade is out. Apple knows this and may lead in AR. But maybe it won’t.

I’m a big believer in index funds now, but I still hold most of my individual stocks. The main reason is that I’d be hit with a big tax bill if I sold. I’ll sell a little off every year and then sell more aggressively when my income is lower and I don’t have to pay capital gains. I feel like I’m playing a dangerous game of chicken with Mr. Market, but life is more interesting with a little drama!

 

Performance Update: July

July was a great month. Our portfolio started at $1,404,233 and ended at $1,439,455 for a gain of $35,222:

Chart from Personal Capital***! This is what I use to keep track of my 1,276,211 accounts.

2017 (as of 8/1/2017)

  • Days elapsed: 202 (Wait, summer is over already? Damnit!!! )
  • 2017 gains: $182,327 (including 401(k) contributions of $44,000 and car purchase of -$45,000)

Since the start (1/1/2013)

  • Days elapsed: 1672
  • Portfolio gains since 1/1/2013: $853,412
  • Needed to quit work ($1,120,000 in investments): Mission accomplished!
  • Net worth****: $1,894,455 which includes:
    • Investment portfolio and cash: $1,439,455
    • Home equity$390,000
    • Silly toy car$45,000
    • Other cars, bikes, dinosaurs: $20,000

Other Stuff I’m Tracking

Here is what else I track:

Weight/Fitness

My recent vacations blew my fitness out of the water. I’m too embarrassed to show you many pictures, but I’ll show you at least one. Sensitive viewers, avert your eyes now.

Yeah, not good. I’m working on it though. I’m in a epic death match with Mr. WoW to see who can lose the greatest weight percentage by the end of October.

Budget

In addition to blowing up my gut, the vacations blew our normal spending out of the water. It is painful to write this, but we blew threw $4,657 in July. Add in our mortgage payment of $1,246 and we’re up to:

$5,903

Oh wow, it’s painful typing that. That’s a horrible number. August will be just as bad, but we’ll be back on track in September as life settles down. Summer months are always the most most expensive for us.

 

One more Thing about Stocks

And just because I don’t buy individual stocks much anymore doesn’t mean that I don’t think about them. I love studying business. And I’ve realized one important thing recently:

Software is where it’s at.

The companies that create the best software are going to be the leaders. I already mentioned how important software is to Tesla. Google is a behemoth because it hires the best software developers on the planet. SpaceX can land rockets on floating platforms in the middle of the ocean because of software. Amazon is killing shopping malls near you because of software. Need more examples? Here are two more software companies disrupting old businesses:

  • Uber (the most valuable non-public company in the world)
  • Airbnb

Don’t underestimate the importance of software.

 

*My goal wasn’t to have $1,120,000 at the end of 1500 days, but at any time before the day count was up. Why? It all goes back to the 4% Rule. Remember that our little friend, Mr. 4%, is nothing more than the most conservative safe withdrawal rate. So, if I were to quit my job now, I could spend about $48,000 in my first year of retirement. I’d stick very close to that number too because market valuations are ambitious. Let’s say that Mr. Market caught a cold tomorrow and my portfolio dropped down to $800,000. No big deal. This would mean I’d be safer stretching my spending a little north of 4%.

**My original goal was $1,000,000 and no debt, I later raised the goal by $120,000 to $1,120,000 because I will have debt in the form of a mortgage and I firmly believe in not paying it off. My compromise is to have enough money put away to cover the mortgage at the time of retirement. So, to retire today, I would need about $1,120,000.

***This is an affiliate link. If you sign up, the blog (me) makes some cold, hard, beautiful, cash. Personal Capital is a totally free and awesome way to keep watch over your investments. It’s worth it for the fee analyzer alone. I would never recommend anything that I don’t personally use and completely believe in, so give it a try. If you’ve already signed up through the link, please know that you are a fine person of above-average intelligence.

****My 401(k) contributions include my own, Mrs. 15oo’s, and the contributions from my corporation. Self-employment with a solo 401(k) is a very powerful savings tool. I should have done this years ago.

Join the 10s who have signed up already!

Subscribing will improve your life in incredible ways*.

*Only if your life is pretty bad to begin with.

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33 Responses to Performance Update (Day 1672): Why I’ve Outperformed the Markets

  1. Team CF says:

    Hope that was not a waterproof marker 😉

  2. Damn…that Tesla return. Every time Tesla dips at all, I debate whether to buy it before convincing myself that I shouldn’t get into individual stocks. I believe in indexing, but I do get tempted from time to time.
    Matt @ Optimize Your Life recently posted…How to Earn More MoneyMy Profile

  3. No one is perfect but you’re clearly a competent stock picker. Are there any conditions in which you’d temporarily stop indexing in an overvalued market?
    Rich @ pennyandrich.com recently posted…Monthly Happiness Report: Rich Is Not Crabby, He’s Back In The USA At The Beach. And There’s A Beef Jerky Outlet. — August 2017My Profile

    • The Rhino says:

      ‘No one is perfect but you’re clearly a competent stock picker.’

      You need a lot more data to determine whether outperformance of the market is due to luck or skill, about 25 years rather than 4 years.

      Having half a mill in 4 tech stocks on a total portfolio of 1.4mill is pretty undiversified. Have those 4 been rebalanced over the last 4 years at all?

      Its great that you’ve had a 10-bagger but wheres the process? If things do get rough for any reason going forward then it will be tricky to know what to do?

      • Yep, I agree with most of what you say except the 4 year part. I bought Google in 2004 (20 bagger). I also bought Apple in 2007, but sold it earlier this year (as I mentioned in the post), so didn’t elaborate on that one. The reason I went back to the end of 2012 for the chart is because that’s when I started the blog.

        I do agree that luck and stubbornness to sell played a big part.

        • The Rhino says:

          ah yes – i was just looking at the nice chart from 13 to 17

          those 4 tech stocks comprising > 1/3 portfolio look like someone whos trying to shoot the lights out in eary accumulation stage, but reading that you’ve surpassed your net worth target by some margin suggests you’re in the wealth preservation stage. That suggests some sort of cognitive dissonance on asset allocation?

          Do you have a target asset allocation as part of your process?

          Maybe those stocks are now an historical anomaly in your portfolio and the psychology of selling such good performers is a bit of a blocker?

          On a slight tangent – when you say ‘software is where its at’ is that a basis for a belief that tech shares are likely to do well? I’d argue that the statement is 1st order information, i.e. the market knows that and has factored it into the price. Stock picking on 1st order information whilst providing examples of hindsight bias multi-baggers leaves me feeling nervous 😉

          • Like I said in the post, I’m not comfortable holding these stocks. The main reason that I still have most of my shares is because of taxes. I’m slowly selling them now and will accelerate the pace when our income is under the limit (~$70,000 I think) and we can sell without taking the tax hit.

            With regards to software, that was a general statement that I didn’t make while thinking about stock picking. I just like to think about business. And to build on what I meant, take cars and phones for example. Every car manufacturer is now good. There aren’t big quality discrepancies like there used to be. Same with phone hardware. The software is the differentiator. I like to listen to Marc Andreessen and the importance of software is one of his ideas.

    • Yep. I’ve already stopped. New money is going to private money loans which earn me about 10%: https://www.1500days.com/how-i-invest-in-real-estate/ I go where the opportunity (returns) is.

  4. The Rhino says:

    yes apologies – i hadn’t read the OP in enough detail

    thanks for the clarification 🙂

  5. Great to read that Mr 1500.

    I try to focus on businesses where change is slow or almost non-existent. I like the consistency and relative stability of these businesses. For example, some of my best ideas over the past decade have done pretty well ( though not as well as yours).

    However, we do not know if the future won’t disrupt those. I am going to bet that they won’t be materially disrupted.

    As far as index funds are concerned, the unfortunate reality is that behavioral pitfalls are still prevalent. Many of the prominent index fund bloggers out there have exhibited the inability to stick to an asset allocation for more than a couple of years. Therefore, they have ended up underperforming their original benchmarks.

    The real reason why you have done so well is that you are flexible and do not have rigid views of the world ( I may be guilty of that). You are open to new ideas, and when you see you are wrong, you adjust accordingly. Most others tend to double down on their original views. This quickness and flexibility are the things I admire about your style. Perhaps I am the only one who stops by here not for the dinosaurs 😉

    DGI
    Dividend Growth Investor recently posted…Five Tips to Avoid Dividend CutsMy Profile

    • Mr. 1500 says:

      Thanks DGI for the kind comment!

      And I’ve actually thought often about you and your investing style versus mine. The thought I’ve arrived at is similar to your point; I’m betting on disruption while you’re putting your money on stability.

      On another level, I’m betting on very subjective (and far riskier) attributes like company leadership (Zuckerberg! Musk!!) and the acceptance of new technologies (electric cars).

      However, neither approach is wrong because we’re not investing in the same companies.

      And yeah, the behavior gap dooms many an investor. I actually think my greatest strength as an investor is my temperament. By that, I stick to my original hypothesis regardless of short term fluctuations. Maybe I’m just a stubborn ass!

  6. Congrats on those great returns, 1500. Those are some impressive numbers and kudos to you for identifying the winners and sticking with them for this long. Wish I had bought Google when it went IPO, but I was still in school and broke 🙂

    cheers
    R2R

  7. Penny stocks can actually help people reach their goals fast if you get it right. However, it really helps to have a goal as we can see with Mr. 1500 days. You have done excellently. Keep it up
    Myfinancekits recently posted…Prepaid Cards: Essential Features to Watch Out forMy Profile

  8. Mr. Tako says:

    My 4 year old son says “The picture of the face on his bellybutton is funny”. I guess your belly has a fan.

    Nice portfolio gains Carl! With numbers like that, you don’t need to worry too much about overspending on vacation.

    I’ve got some big “vacation” numbers coming up soon too, so I’m hoping these market gains stick around for awhile.
    Mr. Tako recently posted…It’s OK To Be A Little UnderemployedMy Profile

  9. Acastus says:

    Here is a little food for thought on individual stocks.

    In the 1990’s, my coworker owned a bunch of EMC, so much that he would jump 2 tax brackets if he sold it. So he kept it. His purchase price was less than 10 bucks, and it climbed to 60, then 110…then plummeted to $4 at the end of the decade. He hung on the whole time. I had a couple stinkers myself.

    YMMV. However, diversification is a real need for investors. Even Cramer has the “am I diversified?” segment. Here’s hoping the market hangs in there long enough to spread out those high fliers.

    • I have similar thoughts almost every day, especially with facebook. I don’t think that Google and Amazon are going away any time soon though, so for the most part, I don’t lose sleep over my holdings.

  10. Paul says:

    Mr. 1500,

    Still have your Brk-b? Just had a brief discussion with JL Collins on his website re the future of Berkshire. Jim thinks the stock may go down in value if it starts to pay a dividend. I agree this is likely long term. Short term I see the stock getting a sizable bump upwards if it starts paying a dividend.

    The stock is close to an all time high….I’m very tempted to sell it, pay off my mortgage and pay the large capital gain tax. If I liquidated my entire position I’d have enough to do both. Tough decision.

    • Hi Paul!

      I still have Berkshire (about $65,000 worth). I’m not worried about a dividend, but I am worried about the direction of investments after Charlie and Warren exit. Ted Weschler and Todd Combs routinely get a vote of confidence from their bosses, but their investment style is different. Warren and Charlie would have never invested in Apple or GM. Neither have the massive moats that Warren and Charlie routinely speak about.

      If you have a low interest rate, I’m not sure I’d pay off the mortgage either.

      And Buffett seems to still be going strong, so Berkshire may have many good years ahead of it.

      How about a compromise? If Berkshire starts paying a dividend, throw that money into your mortgage!

  11. Mrs. BITA says:

    Your 500k in individual stock makes me a feel a little better about my $200k in 2 stocks. I didn’t pick them though – those are stock grants from my employer and Mr. BITA’s, and vestiges of a time when we treated our money worse than H. Potter’s stepfamily treated him – we roundly ignored it and pretended it did not exist. Now we’d owe a LOT in LTCG taxes on those old stock, so we’re holding on to them until we retire and drop down into a much lower marginal tax bracket.
    Mrs. BITA recently posted…An Update On Our Churning PortfolioMy Profile

  12. Undertrader says:

    Much like you, I retired early (35, I’m now 46) and lived off picking stocks since then (Thanks Apple, WWE, Berkshire, etc…) but now that I have a lot of cash, while I think indexes are great, I think you can do better in REITs at the moment. They pay 10-12% dividends, they have high positive cash flows, they are legally obligated to pay dividends, etc. So, for $1,000,000 cash, diversified across 5 REIT’s that I’ve picked, I get 10.5% dividends a year, or $105,000 cash, at 15% taxes = $89,250 a yearish, my family spends about $60k a year (Mostly on vacations, the house is paid off, which I think is stupid, I shouldn’t have done that, but that’s where we are) so I can reinvest $29,250 a year, allowing my investment to compound using a Dividend Reinvestment Plan to not pay any trading costs. Just another way of doing things. I like Index funds, but right now, where the market is at, I’ve gone REIT’s and Apple, because Apple is going to crush in the next two quarters.
    Undertrader recently posted…Your net worth does not include things you owe on…My Profile

    • Yeah, I’m kinda on the same page. All of my money is going into private lending and syndication deals now. If the market has a big correction, I’ll redirect the proceeds back to Mr. Market.

      I’d be curious to know which REITs you invest in.

      And yeah, Apple upgrade cycle will be huge. AR, here we come. I clearly sold too soon. #oops

  13. Nice Gain in July and thanks for the viewer advisory on the picture. I had been an individual stock picker owning upwards for 20 stocks at any given time. That has changed over the last few years as I have been putting more and more money into index funds. So far so good!
    FIbythecommonguy recently posted…DIY Fence BuildMy Profile

  14. Nice gains in July and thanks for the viewer advisory on the picture. I use to be an individual stock picker having 20+ stocks at any given time. That changed a couple years back and I have been pushing more money into index funds. Individual stocks are down to 10 now. So far so good.
    FIbythecommonguy recently posted…DIY Fence BuildMy Profile

  15. Nguyenlinh says:

    I have also invested in Google and Facebook in the last two years and indeed have brought some success.

  16. jlcollinsnh says:

    This is why I am so impressed with you.

    So often I hear from folks who pick a few stocks that work and think they’re the next Warren Buffett.

    It is easy to accept indexing when your stock choices come up short.

    It takes a lot more humility, wisdom and self awareness to do so when your picks have worked so well.

    Well this and the $45,000 used Honda. 😉

  17. Oldster says:

    I agree with all points. While I have been largely a stock picker through life, had I just invested in index funds, I’d have done just as well. It was a startling revelation when I did the math on that.

    Also agree that software will rule the next world of investment opportunities. I’d add a layer over that of big data. Whoever has the biggest, best, most usable data sets, and the software to implement the results, will be the Exxons and General Electrics of the future.
    Oldster recently posted…Fear Loses to Critical Thinking Every TimeMy Profile

    • “While I have been largely a stock picker through life, had I just invested in index funds, I’d have done just as well. It was a startling revelation when I did the math on that.”

      Yeah, right!?? It’s amazing to ponder.

      I heard Morgan Housel (the best financial writer out there in my opinion) state that indexing won’t last forever. Another strategy will eventually rise up to supplant it. I think that you’re on to something with the big data comment.

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