Skate to where the puck is going.
– Wayne Gretzky
This is the post I never wanted to write. That’s because index funds are the right choice and I don’t want to give anyone bad ideas. However, people keep asking me about picking stocks. So I give you this post.
Before I get into it, let’s take a trip on the Wayback Machine.
1998
I was at my first job. Yay! I was finally making real money and it felt great.
I didn’t really know how to invest, but knew that I needed to do it. I had $60,000 in student loan and credit card debt, but didn’t want to wait to get started investing. I got caught up in the Internet tulip-bulb frenzy and bought stocks in companies like CMGI. I also bought a mutual fund called Munder NetNet which went from $10 to $120 (I’M GONNA BE RICH!!!) before it went to $0 (Whoops.).
I lost it all. However, I was only making $37,000/year, so playing with very small dollar amounts. It’s best to learn harsh investing lessons early.
Sometime in 2000
I was at work trying to solve a technical issue when a consultant advised me to:
Just Google it.
What? I had never heard of the Google search engine before then. But I pulled it up, typed out what I was trying to do (get a mainframe system to talk to a client-server system), and up came my answer. The way I worked changed instantly. No more paging through 1,000 page books looking for answers. I became obsessed with Google and bought the stock when it IPO’d in 2004.
January 2007
Back in 2006, everyone knew Apple was coming out with a phone. I wasn’t a big Apple fan then, but the hype was huge, so I tuned in on January 9th to watch Steve Jobs show off the new device. What I saw was profound. A pocket computer that could replace my GPS, camera, and MP3 player. Instead of lugging 4 devices around, I could just have one. But the best part was that Apple had nailed the user interface. It was completely obvious that Apple had hit a grand slam. I immediately bought Apple stock.
May 2012
Like most, I had a facebook account. I liked facebook as a tool because it allowed me to find and stay in touch with old friends and family. Social media is trendy, so I was hesitant to invest in facebook when it IPO’d. However, I kept reading two pieces of information from naysayers:
- Transition to mobile: At this time, facebook was a desktop app. Analysts worried that facebook would have trouble transitioning to a mobile app. I thought this concern was ridiculous. I’m no genius and had put an app on Apple’s App Store. Surely a company with the resources of facebook could figure out how to launch an effective app and bring its users over.
- The earnings don’t justify the stock price: Of course they didn’t. Facebook hadn’t yet put ads on its platform. This isn’t hard either. Duh.
I bought 1,000 shares of facebook when it IPO’d and 1,000 more when the stock crashed into the teens.
Now
I’ve done pretty well. Most of my stocks are in a post-tax, ETrade account. Here are the numbers:
The oldest stock purchase here was Amazon in April of 2012. The newest was BYD this past February. It’s difficult to compare against the S&P 500 since the purchases are spread out. But I’ve clearly beat it since the S&P has returned about 430% since 2012.
Skate To Where The Puck Is Going
As a long-term, growth investor, nothing drives me crazier than technical analysis. These phrases make me throw up in my mouth:
- resistance levels
- trend lines
- fibonacci retracement
- moving day averages
- price patterns
I don’t care where the stock closes today, in 90 days, or end of year. I care about 10 years from now. I care where the company is going. Growth, growth, growth!
Here is what I do think about:
Is the company innovative? Remember Google back in the old days? Gmail? (so long Hotmail) Google Maps? (so long Mapquest). Now, consider Google’s AI efforts and Waymo. Google isn’t what it once was, but the company is still willing to make bold bets.
How big is the moat? How fast can the competition spin up a competing product? This one is really difficult because the world moves quickly. SpaceX has a massive moat now. It has successfully launched 398 rockets and landed 347 of them. The competition has landed 0. Eventually someone will catch up, but it will be a very long time.
Do smart people want to work there? Google has brilliant employees. So does SpaceX. I like to invest in companies that smart people want to work at.
Does the founder lead the company? No one cares more about the baby than the parents.
Does the stock pay a dividend? A dividend can be a warning sign. Issuing a dividend usually means that the company hasn’t figured out a better way to deploy its cash. I’d rather invest in companies that are still putting the cash to work in research and development. The exception to this is companies like Alphabet and Apple that have so much money that they can fund crazy projects and pay a dividend.
When people ask me this:
How do you pick stocks?
– you
My answer is always the same:
I don’t pick stocks. I pick companies.
And I’m the opposite of a dividend investor. A dividend investor is betting that things stay the same. People will keep buying the product and the company will keep paying a dividend.
I’m betting on disruption. For example, a widely deployed autonomous car service would put many traditional auto manufacturers out of business. Why buy a car when you can rent one on demand for a fraction of the cost?
Luck?
This post is kinda embarrassing because I feel like I’m tooting my own horn. I’m a nerd obsessed with nerd companies and this is how I invested. Tech has done very well:
Perhaps I was just obsessed with the right thing at the right time.
My Future
In the past year, I have purchased three stocks. Two of them are private and I’ll talk about them later. The third is BYD. Electric vehicles are in the early stages of replacing their internal combustion counterparts and BYD is dominating. Wang Chuanfu, BYD’s founder, is an incredible leader. But I only bought $10,000 worth of the stock. Funny money.
Even if you can pick stocks, there are two problems:
When do you get off the ride? No empire lasts forever. Today’s leaders will be gone and forgotten eventually. Capitalism is ruthless. Consider that only 94 companies in the S&P 500 were in the index 20 years ago. 80% have dropped off!
Is this how you want to spend your time? Being in the mountains or on a bike is better than watching an annual meeting.
Moving forward, I’m doing two things:
- New money is going to index funds. I have 3 private loans being paid off soon ($1,058,000). All of that will go to index funds
- I’m slowly selling off my stocks. If Mindy and I don’t need the money, I’ll put the proceeds into index funds. If Mindy quits, we’ll live off of the stocks.
If you come back to this site in a year, VTSAX will probably be my biggest holding. But I may give QQQ and VGT some love too. Once a nerd, always a nerd.
Update: Reader Tech left a nice comment below. He’s giving me too much credit, so I decided to play devil’s advocate. Here is everything that could go wrong with my 5 biggest stock holdings:
Tesla ($792,000):
- Chinese manufacturer BYD is coming on strong. Tesla canceled its plans for a $25,000 car because of competition from it.
- Musk is now betting the company on an autonomous robotaxi fleet. Waymo is currently doing over 150,000 driverless rides per week and is expanding aggressively. I have Tesla’s autonomous car software and while it is improving rapidly, at least here in Colorado, it is NOT robotaxi ready. Unless you want to die.
Meta ($510,000): It’s a social network. Anyone remember MySpace? Barely.
Amazon ($241,000): It’s a retail powerhouse, but the company makes most of its profits from Amazon Web Services (cloud computing). This is a commodity that others like Google and Microsoft are gunning hard for.
Google ($166,000): Is ChatGPT a better way to discover information?
Berkshire Hathaway ($40,000): Technology is coming for some of Berk’s biggest businesses. Autonomous car fleets would wreck the insurance business (Geico). Autonomous, electric trucks would wreck the railroad business (BNSF).
Unknown unknowns. This is the scariest risk. Who knows what technology is brewing in a 16 year-old’s Macbook that will take down <insert your favorite stock here>?
More 1500 Days!!!
You can also find me (and the dinosaurs) at:
Mile High FI podcast:
MindyOnMoney podcast!
Also here:
- Facebook: Facebook group and page
- YouTube: My channel is mostly devoted to home improvement, but I have some other material coming up soon too.
- 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.
- Buying a Tesla? Use my referral code to get some perks!
Great way to start my Monday! Thanks for the post.
Thanks!
Wow with a track record like that, not sure why you would be pro-index? If I had done that well I am not sure I would have made the switch to index investing as easily as I did. I too picked great nerd companies like Novell and Nortel which I strongly believed in and bought for the long-term growth. My diamond hands were rewarded with 100% losses! lol
“Consider that only 94 companies in the S&P 500 were in the index 20 years ago. 80% have dropped off!” Very good point my picks were often in the 80%. I have proven to be terrible at picking and timing so taking the average is better than my track record. I really like the self cleaning of the index and not having to worry about what to buy when to sell and getting the timing right. However, your track record is great and you could be selling a stock picking newsletter. Only half kidding, I think you won the game and deserve to sit back and ride the index average like the rest of us index investors. Thanks for sharing.
You’re being too kind. Lots of luck here. But you inspired me to add to the post. See the addendum!
I don’t think I am being too kind, it can’t be all luck!
Your Tesla stock just got another big bump today and Elon now has elevated status and power. I would still sign up to your stock picking newsletter.
I wonder if Trump knows he’s being manipulated by Musk? Or hell, maybe it’s the other way around. It’s like Game of Thrones in real life, but with a little less violence, but probably more sex.
The newsletter would come out once every 3 years because that’s about how often I have a good idea. But, I’ll write a couple things I’ve been thinking about:
1) If I had to hold one company for the next 10 years, it would be Alphabet.
2) I’m most excited about SpaceX. It’s a monopoly that is accelerating is its advantage. The Starlink IPO will be big.
I don’t think it’s a bad idea just to hold the Qs.
SpaceX is definitely doing awesome stuff, and I’d think they have most of the good rocket engineers. However I wonder what’s to stop a competitor? I suppose a lot of money for someone new, and for Boeing it appears to be so burocratic and bad nobody good wants to work there?
As for the technical traders, as long as you accept its a job, and they’re playing poker, signals seem like tells and fine. However you take on Jane Street at your peril, but as jobs go their interview process had some fun problems, so maybe an interesting place to work?
Alphabet makes up 13.2% of VTI so I guess I am already holding that for the next ten years.
SpaceX is not currently publicly traded but it is I hope that will also be included in VTI. I did a quick search and it seems you can buy shares through Hiive, but not sure how that would work or how easy that would be.
Holding the Q’s. I assume you are talking about the ETF QQQ that tracks the Nasdaq 100? I agree not a bad idea with AI and other technologies leading the way. While the ratio for tech is higher in QQQ than VTI there is a lot of overlap.
” Game of Thrones in real life” Does that mean winter is coming and there will be dragons?
Luck indeed but you practiced sound discipline, which combined with time, yield amazing results. I feel like you are secretly advocating for stocks with all these home runs, aren’t your Carl??? 🙂
Great insights! You make a valid point about companies issuing dividends when they might not have better opportunities to reinvest cash. It’s true that companies like Alphabet and Apple, with their massive cash reserves, can afford to both innovate and pay dividends. Definitely something to consider when evaluating long-term growth potential.
You beat the market with these picks, but the funny thing is that had you just owned vtsax, you’d still own a lot of stock in all these companies. Your net worth might not be as high, but you’d still be in great shape. I think this shows that buying great companies is super important, but also shows that buying the index buys those great companies either way.
Agreed. The indices have totally killed it.
To me, the most impressive part of your track record is your ability to hold winners. A lot of people can buy good stocks, but many sell after a double or triple.
This is one of the few instances when being stubborn is a good quality! 🙂