My main goal is to build a portfolio of $1,000,000 in 1500 days with no debt*, starting from 1/1/2013. Every month, I provide an update on my status. My goal for 2014 is to get my portfolio up to $768,536. Because we saw exceptional returns in 2013, I have accomplished this goal. Time to look back on the month of January.
Forget about my little performance update for a moment; a much better one came out this past Saturday. If you haven’t yet, check out Warren Buffett’s annual letter. It is a must read. I print it out every year (who prints stuff anymore?) and read and reread this thing meticulously. You should too as there are lots of lessons in those pages.
So far, I’ve only skimmed the surface of it, but this quote on page 19 really stuck out:
A climate of fear is your friend when investing; a euphoric world is your enemy.
I’ll get back to this quote in a moment.
February was a spectacular month; one of my best ever. My portfolio started the month at $858,561 and ended the month at $909,688. The investment portion (non-cash) started at $818,214 and ended at $869,360 for an increase of 6.2%. Most of these gains were due to some stocks I hold**. Overhyped SolarCity and Tesla (thank you Elon Musk) propelled me to new highs. Crazy enough, I’ve made my end of 2015 goal already:
Here are the numbers as of 2/28/2014:
- Days elapsed: 60
- Days remaining: 305
- 2014 gains: $40,053
- Left to go (2014): Goal accomplished!
Since the start (1/1/2013)
- Days elapsed: 423
- Days remaining 1077
- Gains since 1/1/2013 gains: $323,645 (including my contributions)
- Left to go: $90,312
This is all great, but I’m not that excited about it. During the past year, we’ve seen a spectacular stock market run. However, it’s only one brief moment in time. Remember Buffett told us that a ‘euphoric world is your enemy’ and that’s how it seems to me lately. For example, the fact that Tesla is worth about half as much as GM and Ford is a bit ridiculous. Also, if you haven’t, check out the S&P 500 PE. It’s at almost 20 while the historical mean in closer to 15. So, while I’m a long term optimist, I’m a short term pessimist. I wouldn’t be at all be surprised if my portfolio goes down to 850K before it sees 950K.
What is the appropriate action to take?
Stay the course. If (when?) the markets take a huge hit, the last thing that you should do is freak out and sell:
- Downturns are just opportunities to buy what you’ve been buying all along at a discounted price.
- Downturns are healthy. Just like everything else in life, the stock market is cyclical. Periods of incredible growth will be followed by corrections. It’s just the way of things.
- The long term trajectory of the markets is up. As long as you believe this, you’ll be alright.
I couldn’t end without a shout out to Mr. Collins who explains the stock market much more eloquently and thoughtfully than I ever could. His stock series is all you need to know about investing.
Also, don’t forget to pay Mr. Buffett a visit as well. If you’re a Berkshire shareholder, perhaps you’ll be visiting the Oracle of Omaha in person this May. I wouldn’t miss it for the world.
*I still owe something like $120,000 on my mortgage. Because I have a low rate, I firmly believe in not paying it off. My compromise is to have enough money put away to pay off the mortgage at time of retirement. So, to retire today, I would need about $1,120,000.
**I do not recommend buying these stocks or any stocks really. My stock holdings are mostly a relic of an investing philosophy that I no longer believe in. Over time, I’ll be selling my individual stocks and moving to index funds and real estate.
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