Ever since JL Collins showed me the wisdom of index funds, I’ve been a big fan. Prior to that, I invested in individual stocks.
Stocks worked out pretty well for me. I’m a tech nerd, so I was heavily biased towards geek stocks. I bought Google when it IPOd in 2004 at a split-adjusted $42.50/share (over $1,200 today). I also bought Apple back in 2007 when the iPhone was first announced. I’ve had some other big wins too:
However, stock picking is hard. I thought I was doing the right thing when I sold Apple a couple of years ago. It has since doubled and has been paying a nice dividend all along. Ooops.
Stock picking also requires a lot of mental bandwidth. If 10% of my net worth is tied up in facebook, you better believe that I’m going to be paying attention to the company. I’d rather be thinking about something else.
So now, almost all new money goes to index funds or real estate. Almost…
Funny Money Portfolios
I still play with stocks, but on a very small scale. I enjoy it for entertainment (my version of TV?) and the challenge of trying to beat the markets. Here is how I’m doing.
Funny Money Portfolio #1: Dead Even
I started this portfolio in June of 2016 with $20,000:
I’ve beaten the S&P almost the whole time:
But after 40 months, I’m tied the index:
Totally not worth it.
Funny Money Portfolio #2
I started another portfolio on January 2nd of 2018. Dividend Growth Investor had challenged me to take the Warren Buffett bet:
Could I beat the S&P 500 over a 10 year period?
Sure, I’m game! I created a mini-portfolio of just 4 stocks:
So far, so good:
However, I’m only 20 months in. There are 100 months more to go. By the end of the challenge, the US government may have declared that Amazon is a monopoly and broken it up. Or maybe walmart.com rises and takes it out. Or maybe, there is a kid at Stanford coding an Amazon killer in her dorm room right now.
Big Tech?
One issue with my little stock-picking experiment is that it’s so heavily focused on big tech. The government hasn’t failed to notice how much power companies like Google, Facebook, and Apple have come to wield. Even if they aren’t broken up, I expect big tech to come under a lot of scrutiny soon. When this happens, my portfolio will hurt.
Yet more stuff to worry about.
I have no clue what will happen, but I do know that index investing is easy, simple, and effective.
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.
I’d say that’s pretty cheap entertainment to be even with the index funds after 3 years of playing. Play on!
Financially Fit Mom recently posted…Nobody Wins
You are doing well with your picks. According to marketwatch.com (from May 2017), about 1 in 20 actively managed domestic funds beat index funds.
Ryan Schlomer recently posted…My Budget Does Not Work
Woot! I wish I made the money of a fund manager!
Just wondering, are you including dividends reinvesting, because I believe you are shorting yourself.
Thanks
Joe
Joe Saglimbeni recently posted…The Five Greatest Stocks Update-The Final Update
I think that Motif includes dividend reinvestment in the performance data, but I also think that is relatively new. So, I am shorting myself, but not by a whole lot.
Thanks for doing this little experiment – super interesting to see these two strategies played out in real life. My dad and I are bonding these days over my FIRE tendencies, but he tends to play individual stocks more than I do (of course, he has much more money than I do so he can afford it!).
I also had a friend (a guy who FIRE’d in his early 40s without having ever heard of FIRE) who had a portfolio consisting of Apple, Amazon and Intel (a former chip engineer for them). They were pretty solid bets for him, but still more risk than I would take on. He sold all his Intel, for example, when news of the chip security hack broke (he knew how serious an issue it was because of his past employment).
I’ll stick with the index myself but fun to see how this played out!
BC @ FrugalWheels recently posted…A roadmap to financial independence and financial stability
what did you sell to fund buying your new house? or haven’t you sold anything yet? those individual stocks really set you up for success. you got those great returns early on to set the stage for being able to throttle back to index funds.
my individual stock portfolio has more than doubled since 2016 and is up 40% this year. it’s clearly not for everyone but i enjoy doing the work so much that it doesn’t feel like work. we’ll all make money in the end.
freddy smidlap recently posted…My Two Largest Holdings Got Punched in the Groin? Should I Panic and Sell?