In December of 2017, Dividend Growth Investor (DGI) asked me if I’d like to duplicate the famous Warren Buffett bet. For those unfamiliar, in 2008 Buffett famously challenged the hedge fund industry:
Can you beat the S&P 500 over a 10 year period?
Buffett won as the hedge fund got clobbered by the S&P 500.
But, I like fun experiments and a little drama, so I agreed.
Background
I picked four stocks:
- Amazon: Good luck disrupting this one. And what’s this AWS thing?
- Alibaba: China rising.
- Berkshire Hathaway: Consistently undervalued. Munger/Buffett.
- Alphabet: A behemoth that’s just getting started. Waymo is winning.
Crash!
For the first 4 years, everything was great. Then 2022 happened:
- Inflation went up
- Interest rates went up
- Stocks went down
With dividend reinvestment, the S&P 500 is up 56.35% while I’m up 29.10%:
And here is what my individual holdings looked like on 12/31/2022:
Only 1 company, Google, is beating the S&P. Alibaba is negative!
Here is what I think of these stocks now:
- Amazon: Still a behemoth. And its advertising business is crazy good. I’m still a believer.
- Alibaba: No clue. Its CEO, Jack Ma ran afoul of the China Communist Party. You don’t want to run afoul of the CCP.
- Berkshire Hathaway: Buffett and Munger are still going strong but I’d be surprised if they’re both still alive in another 5 years when this experiment is over. Mr. Market will temporarily punish Berkshire Hathaway when the transition happens.
- Google/Alphabet: Still a software powerhouse. If I had to have my money in one stock for the next 10 years, this would be it.
Brighter days ahead? The end of 2022 was an interesting time. Everything was bottoming out. Some of this was probably due to tax-loss harvesting. In the weeks since then, I’m already up 13%.
What About DGI?
DGI hasn’t post his returns yet, but I’ve been communicating with him. His portfolio lagged the S&P for the first 4 years, but he’s pulled ahead in year 5. This makes perfect sense since his holdings are less growth oriented.
Congratulations DGI on a winning 2022!
Where Do We Go From Here?
I have no clue what the next 5 years will look like:
- When will the war in Ukraine end?
- Will China invade Taiwan?
- Who will lead Berkshire Hathaway once Buffett and Munger are done? (Probably Greg Abel.)
- Is Waymo’s autonomous taxi fleet scalable?
- Will ChatGPT disrupt Google?
Playing a little with stocks has been fun. This is a great luxury since I oversaved and can afford to be a little reckless. However, most future money will flow in the direction of index funds. I don’t want to spend my time thinking about Waymo (autonomous cars) or dry battery electrode (Tesla) or the Metaverse (Facebook) or how Amazon’s ads are doing.
It’s also very hard to predict when a company has peaked. So even if you pick a winner, you better sell it before the stock goes to $0 as most will. VTSAX will not go to $0.
More 1500 Days!!!
You can also find me (and the dinosaurs) at:
Mile High FI podcast:
Also here:
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- Instagram: Pretty pictures of dinosaurs, sunsets, and nail guns!
- Twitter: Spontaneous, often insane, ramblings
- Coworking space: On the surface, MMM HQ is a coworking space. Look a little deeper and you’ll see that we’re really building community. The members of MMM HQ are some of the finest people I know.
Great post, concentrated small holdings can outperform or underperform greatly. Indexes are great vehicles for the masses.
I think that I heard it on an episode of ChooseFI (or it could have been Earn and Invest), but the term that I’ve heard for this is “strategic underdiversification”. The idea is that a highly diversified portfolio (e.g., something like “all VTSAX”) is like the tortoise, slow and steady. If you can stomach the risk, however, then strategically choosing to underdiversify, for instance by putting up capital to launch a business, by picking individual stocks, or by investing in a lot of real estate in a small area, you create the possibility for outsized returns. The trade off is that the risk of failure tends to be much higher and the consequences tend to be more severe. It is certainly not for the faint of heart.
I like that Carl often points out that he picked stocks because he didn’t know better. Some people out there (like Brian Feroldi) are good picking stocks and enjoy doing the work required to be good stock pickers. I’m of a similar mind to Carl. I’ve reached a point in my life where I crave simplicity and the “set it and (mostly) forget it” aspect of index funds fits the bill. It won’t be the best performer, but it will be adequate and it will buy me the simplicity that I seek. Were I in my 20s, I’d be looking at real estate or stock picking much differently and would be more likely to venture in one of those directions.
Thanks!
Love that you are still tracking the 10 year bet/challenge. This means you have to keep updating us for the next five years. We thank you for your commitment keeping this blog going.
Thanks so much Tech for the kind words and happy new year!
You’ve had a great run on those stocks, Carl! Like you say you over-saved so can afford to be reckless, but index funds will never go to zero. This is why I watch you and Doug each episode.
Looking forward to seeing your new Model Y!
I’ve picked a core bucket of stocks that have consistently outperformed the market for the last twenty years, and I’m confident that they will continue to do so. I base this on a secret technique I’ve developed which leverages machine learning and asparagus farming. With the coming recession, possible alien invasion, and the expanding hegemony of squishmallows, I’m sure lots of people are looking for certainty during this very unique and never seen before time of impending doom. I just want to help, so I’ll share them with anyone because I’m super altruistic and you can totally trust me. All I ask is that you send me your name, DOB, SSN, along with the account and routing numbers from your bank of choice……lol., j/k
Sorry Carl, couldn’t help myself. Cool to see you still got the bet going, thanks for the update man. Hope you win!
Freakin’ hilarious! And I want in! TAKE MY MONEY!
OK, maybe not…
Investing in a diversified portfolio of index funds is generally a safer and more reliable long-term investment strategy than trying to beat the market by picking individual stocks.