On February 7th, I wrote this on my Investments page:
…if the stock market were to grow 25% in 2019 (unlikely!)…
Wow! I sure blew that call! As of 12/29, the S&P 500 is up about 30%. I was wrong, wrong, wrong.
But, perhaps the picture isn’t so simple…
Our Net Worth
Our net worth (investments and primary home) is up almost $350,000 for the year. It started the year at $2,064,440 and sits at $2,407,916 today:
Out of this $350,000, about $50,000 was from our contributions (401(k) and HSA). I’m thankful that I have the ultimate passive income source, a spouse that works. I’m also thankful that my passion for writing (you’re reading it) throws off some money. I could never have predicted that either of these things would have happened when I started my FIRE journey back in 2013.
And while a $350,000 gain may sound impressive, if I had it all in the S&P 500, it would have been $100,000 more. Here is what went right and what went wrong.
While I’m mostly an index investor now, I still own individual stocks. 2019 was a pretty great year. Here are all of my non-index, stock holdings greater than $50,000:
Largest return to smallest:
- Facebook ($259,000): 52% return
- Vanguard Tech – VGT ($61,300): 47% return
- Tesla Motors ($73,000): 38% return
- Alphabet ($97,000): 30% return
- S&P 500: 30% return
- Amazon ($120,000): 20% return
- Berkshire Hathaway ($51,300): 11% return
I’m thrilled that the biggest holding in our portfolio also had the biggest return. I don’t feel great having this much money in a sketchy social media company, so I’ll be paring down my share count in 2020, just as I did at the start of 2019.
About half of our portfolio is in real estate and none of those investments came anywhere close to touching 30%. The trailer park came the closest, earning $23,404 (investment was $170,000).
On the other hand, a couple of my syndication deals have gone bad:
- A Praxis deal in San Antonio was underperforming in 2018, but things really went south in 2019 when it didn’t pay out even one quarterly payment. If I would have had that same $50,000 in the S&P, I’d be up $15,000 for the year. Instead, put a goose egg in the Loser Column. Queue the sad trombone.
- Another deal from Watermark recently skipped a payment due to underperformance.
Syndication deals are tricky business. You can look at the numbers in the prospectus all day long, but in my opinion, the subjective measures which are much harder to evaluate, are much more important. Regarding Praxis, I have two other syndication deals in San Antonio that are both outperforming.
In any case, unless I know the syndicator well, I won’t be investing in any more of these deals.
One Battle Doesn’t Win The War
Allow me to talk about Mr. Market a bit more.
One reason that 2019 looks so good is the unintentional cherry-picking of dates. On
paper computer screen, 2019 looks great:
But, if we chart Mr. Market from the start of 2018, we see something interesting:
In September of 2018, the S&P 500 hit 2929. As I write this on 12/26, the index is at 3233 for a gain of 10.4% over that 2018 high watermark. I’ll happily take 10.4%, but it’s not nearly as sexy as 30%. Mr. Market took a beating at the end of 2018 and part of what made 2019 look so great was the rebound. Look at that valley mid-chart!:
None of this matters to the patient, long-term investor. Success should be measured over the course of decades. Move along now.
Mr. Market V. Real Estate
It doesn’t make sense to compare stock market returns to real estate. This is because much of the money from the real estate deals will be made at the end when the properties are sold. This is true of most of the syndication deals (they are value-adds), the coworking space, the trailer park, and even our current home. So:
- Stock prices are a reflection of the economy right now. Lately, Mr. Market has been on fire.
- Real estate income is also a reflection of the economy. If the economy is thriving, we can raise rents at the trailer park and people will sign up for the coworking space.
- Real estate also has the promise of a big payout down the road. If Longmont keeps going bonkers, the property we own on Main Street could be worth much more in a decade. Same for our home. And if the United States continues to prosper, the apartment buildings that we own through syndication deals could be worth much more. Same for the trailer park.
We started off the past two years with big deals. In 2018, we bought a trailer park with two other partners. In 2019, we bought into a coworking space, also with two other partners. At this time, we have no big deals planned for 2020. Instead:
I’ll continue to fix up our current home. Renovations are already underway and we plan to be mostly done at this time next year.
Mindy will execute more deals. Mindy has a real estate license and we enjoy working with buyers and sellers. The deals don’t take up much time and the money is good, so we’ll try to ramp up business in 2020.
Continue to index. I don’t have high hopes for Mr. Market in the near future:
- In the United States, we have a presidential election (I’m NOT going near that!).
- We’re still waiting for our gift from North Korea (I hope that Mr. Kim is sending me a new Tesla!).
- Market valuations continue to be exuberant.
We’ll continue to plug money into index funds. Hell, I was dead wrong about 2019. With any luck, the same will hold true for 2020!
What did your 2019 look like? Do you have any grand plans for 2020? Do you care to make a bold prediction for 2020?
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