beating the market - not what it used to be

[randomep]

"Across all accounts up about 7.5% YTD, one account up 14% YTD.  I'm at about 40% cash overall.  So these are decent numbers."

 

I believe you are saying that your accounts are up 7.5%, including the cash.  If so, I would call that much better than decent.

 

What else could Oddball mean?? lol

[spartansaver]

Actually, I mostly agree with ScottHall.  8)

 

Sure you do, Jurgis. The point here is that you're not not anywhere near up 19 percent this year. - Please remember, I'm the only guy reading your investment blog! [i really could not help it here! [ ; - D]]

 

Why the hate?

[StubbleJumper]

I love reading about secret millionaires.  Who wants to bet that these people have better rates of return over their investing lifetime that the Sp500 or Donald Trump???

 

https://www.nytimes.com/2018/05/06/nyregion/secretary-fortune-donates.html

 

 

Maybe, but you don't even need any alpha to amass money like that.  Just be a prodigious saver early in life, keep your costs low and if you get average returns the compounding takes care of everything else.  So in your link, the secretary was 96 years old?  Some of her money must have compounded for ~70 years?  Not a surprise that the end result was significant, even if there was no alpha at all.

 

 

SJ

[oddballstocks]

"Across all accounts up about 7.5% YTD, one account up 14% YTD.  I'm at about 40% cash overall.  So these are decent numbers."

 

I believe you are saying that your accounts are up 7.5%, including the cash.  If so, I would call that much better than decent.

 

Correct, including cash.

[John Hjorth]

Actually, I mostly agree with ScottHall.  8)

 

Sure you do, Jurgis. The point here is that you're not not anywhere near up 19 percent this year. - Please remember, I'm the only guy reading your investment blog! [i really could not help it here! [ ; - D]]

 

Why the hate?

 

There is no hate involved here, spartansaver,

 

You obvisously haven't read the topic in all details.

[writser]

I also own 40-50 different stocks. Largest 5 positions make up ~25% of my portfolio, smallest 10/20 positions are a few tracker/starter positions or part of a basket. So in practical terms I have around ~30 positions. I'm usually around that number but I don't mind concentrating a bit more at opportune moments. I kind of agree with Nate: each to his own. A basket of net/nets can probably outperform but so does a concentrated portfolio. What is best for you probably depends on your character, age, net worth, confidence, lifestyle, job, etc.

 

FWIW I think 'outperforming the market' is a bit of an overrated concept - I prefer to think in terms of my own hurdle rate and stomach for volatility. Nevertheless I think it is a good idea to have a grasp of what would cause your portfolio to 'outperform'. I think that, especially as a small retail fish, you can have several good angles to try beating the market with:

 

- Time horizon arbitrage: something like BAC in 2012 was a nice example: the thesis basically being: buy it, forget it, don't watch NBC, the storm will blow over in five years.

- Tax arbitrage: PFIC's are a bitch for US investors, maybe you can reclaim dividend taxes in some situations, get tax credits, etc. Research your tax situation and make the best of it. For me personally, Sapec was a great example. KMG was a nice example this year.

- Boredom arbitrage: somewhat related: basically buying cheap stuff without a catalyst: PD-RX was a nice example.

- Liquidity arbitrage: as a small fish it's relatively easy to boost returns if you can do a few good trades, i.e. put some lowball bids in several cheap stocks or try buying a microcap merger on the bid for a 20% IRR. CKTM was a great example this year.

- Gross stuff arbitrage: buying stuff that's so disgusting that no fund manager wants to own it. Chinese companies going private, Halal real estate in Dubai listed on the AIM exchange, microcap Canadian mining mergers, etc.

- Work harder and be smarter arbitrage: my least favorite option. Work harder and be smarter than other market participants.

 

I'm probably forgetting some options. Most of my investments fall in one (or even better: more) of these categories. I'm always surprised how many people (also on this forum) prefer the last option. Like, if you are a part-time investors and you buy TSLA or VRX or whatever, take a step back and think: what is my edge here? I guess it's an ego thing?

[rb]

This topic comes up every few months I think. It basically says today it is hard to beat the contemporary market because somehow it is more efficient.

 

But there are also other threads that say the market is more much volatile than earlier times, why is that?

 

The latter statement is pretty easy to confirm by looking at the s&p 500 index over the last 150years or so (preferably on a log graph). You cannot say that the market was more volatile over some other 30year period compared to 1988-2018.

 

For some it may be hard to reconcile these two contradictory views.

 

A third line of thought goes well there are "insiders" or people with vastly more resources who have amassed a disporportionate amount of market gains.  Why question for them is, who are hey? It isn't Buffett or Todd Combs or Weschler then who are they? Aren't those 3 gentlemen the ultimate market insiders?  It is obvious to me that alot of whom we consider market insider type of money managers are simply making their money off fees and in general lag market.

 

So who the hell is actually making good money off the market?  It seems like the type of folks that are in this forum, or the types in the big short. You just don't really know who they are ahead of time until they are rich and fat.  Only then can you tell who they are and how they did it (probably in a Michael lewis book)

I agree with most of what you said. It seems harder today because of recency bias. But it was never easy. Also the more things change the more they stay the same. A lot of the opportunities to beat the market come from people doing stupid shit driven by emotions like ego, and fear and greed.

 

In the late 90s up here in Canada we had Nortel. This thing was so big and was going up so fast that if you didn't hold it you didn't outperform. Period. During that time you could talk about responsible or conservative asset allocation, etc. But that wouldn't matter if you're sitting next to some smug asshole bragging about his giant returns driven by holdings in Nortel and talking about how the market is different. Of course your underperformance problem got solved when Nortel too a bungee jump off Olympus Mons.

 

The thing is that you didn't need supercomputers or rocket scientists to figure out that Nortel was a turd. But people just wanted to believe. They wanted to believe so bad that when it had a not horrible quarter in 2004 they've piled back in so hard that they crashed the trade matching computers at the TSX. Not long after the company took another dive right into the sea.

 

You wanna talk Wall Street insiders? Take Valeant. I the shareholders of Valeant were not the ultimate insiders I don't know who they are. These guys had every technology or resource at their disposal. They had board seats. But again they just wanted to believe.

[Jurgis]

My #1 advice for learning to beat the market is diversification.

 

I have >30 stocks and am up ~19% so far this year. ...

 

Scott, where are you?

 

I don't think Scott is answerable to you...  ::)

If you don't believe his claims, it's really up to you. Others can make their own minds. Nobody's gonna start posting audited returns on this forum just to convince you or anyone else.

 

 

If you're just trolling, then first (couple) posts were OK, but repeated requests makes it look like you're taking this seriously.  ::)

 

Take care  8)

[Viking]

To go back to the original question, my read is the small investor has never been in a better position to ‘beat the market’.

 

1.) costs are pretty close to zero. Not too long ago I was paying hundreds of dollars for my full service broker to execute a sell order and the same amount to execute a buy order. It now costs me $10 a trade which given the size of my ordered and the (in) frequency of my trades puts my annual costs pretty close to zero.

 

2.) information available to small investors has never been as easily accessible or of the quality it is today. Company web sites are amazing with quarterly and annual reports, conference calls and industry conferences. I deal with RBC and their research is pretty good and costs me nothing; I am likely going to open an account with another bank just so I can have access to their research free of charge. There are very good investing web sites out there like this one. There are very good Economic web sites out there like calculatedrisk. Etc. Many good sites cost nothing (reinforcing point 1).

 

3.) business schools, the investment industry and business tv continue to teach the same things today that they did 10 and 20 years ago (much of it wrong in my humble opinion).

 

4.) large institutional investors are still bound by all the constraints Peter Lynch covered 30 years ago  in his great book One Up On Wall Street.

 

5.) Small/retail investors are as dumb as ever - getting taught/fleeced by 3.) above. Most people still go through their entire life without learning the basics of money and investing.

 

6.) in Canada, about a decade ago the government gave small investors a gift called the TFSA. When combined with RRSP and RESP individual investors are able to pick from a menu of different options to maximize future after tax earnings.

 

7.) because of how the investment industry works (see 3, 4 and 5 above) small investors will continue to be given wonderful opportunities to make money buying stocks - just like the past 100 years!

 

Note: there is a definite ebb and flow to investing... it was much easier to find crazy cheap buys in 2008 and 2009 when the stock market was bottoming (and everyone was panicking). Today in 2018 the bull market is likely in its later innings so it should not be surprising if it is more difficult to find crazy cheap companies. Do not despair... cheaper prices will return... :-)

 

[CorpRaider]

I think most investment dollars always got their asses whipped after fees and taxes, but it wasn't measured well. 

 

Buffett thought that too if you read his partnership letters and note his focus on the Dow as the most formidable opponent. 

 

 

[randomep]

 

 

 

In the late 90s up here in Canada we had Nortel. This thing was so big and was going up so fast that if you didn't hold it you didn't outperform. Period. During that time you could talk about responsible or conservative asset allocation, etc. But that wouldn't matter if you're sitting next to some smug asshole bragging about his giant returns driven by holdings in Nortel and talking about how the market is different. Of course your underperformance problem got solved when Nortel too a bungee jump off Olympus Mons.

 

The thing is that you didn't need supercomputers or rocket scientists to figure out that Nortel was a turd. But people just wanted to believe. They wanted to believe so bad that when it had a not horrible quarter in 2004 they've piled back in so hard that they crashed the trade matching computers at the TSX. Not long after the company took another dive right into the sea.

 

You wanna talk Wall Street insiders? Take Valeant. I the shareholders of Valeant were not the ultimate insiders I don't know who they are. These guys had every technology or resource at their disposal. They had board seats. But again they just wanted to believe.

 

You know when you mentioned nortel and valeant, a present-day company comes to mind.......... its just at the tip of my tongue........arrrgh ...... its some car company........

 

oh well I'll let you know when I remember the name.

[rb]

Yea when I was typing that some car company came to mind as well. But just like you I could really place the name. Mainly because I didn't want to get 40 replies which can be summarized like "You just don't get it man!". I'd rather restrict myself to getting those replies on the thread for that name.... whichever that may be.

[CorpRaider]

The Tithe man.  Get with it. 

[Jurgis]

OMG, so many people are salty just because TSLA stock does not drop even they are so f***ing sure it should.  8)

Guys, just grow up. Go, outperform and be happy.

[Cigarbutt]

What is best for you probably depends on your character, age, net worth, confidence, lifestyle, job, etc.

 

FWIW I think 'outperforming the market' is a bit of an overrated concept - I prefer to think in terms of my own hurdle rate and stomach for volatility. Nevertheless I think it is a good idea to have a grasp of what would cause your portfolio to 'outperform'. I think that, especially as a small retail fish, you can have several good angles to try beating the market with:

 

- Time horizon arbitrage: something like BAC in 2012 was a nice example: the thesis basically being: buy it, forget it, don't watch NBC, the storm will blow over in five years.

...

 

1+

Agree even if using a widely different approach, more of a punchcard-type.

"Never in my life have I owned 30 stocks" [no edit necessary].

 

The average holding times (from a reasonable reference):

 

"Here’s the NYSE’s average holding period for stocks at the start of each new decade:

•1960, eight years, four months;

•1970, five years, three months;

•1980, two years, nine months;

•1990, two years, two months; and

•2000, one year, two months."

 

Now it is a few months and in 2008-9 it was apparently around 2,5 months.

 

Hard to think that this is investing.

 

FWIW, paradoxically, I happen to think that this "new" phenomenon has the potential to offer real (note to Jurgis: did not use the word remarkable to avoid a possible sense of misrepresentation) rewards to the patient and disciplined, whatever value style you focus on.

 

[DanielGMask]

I agree with Scott, I don't know how many stocks I own, maybe 30-40, (50?).  I haven't counted.

 

I looked at performance.  Across all accounts up about 7.5% YTD, one account up 14% YTD.  I'm at about 40% cash overall.  So these are decent numbers.

 

You never know what's going to have a good year.

 

I disagree about the 27th best idea, total straw man.  Unless you're sitting down with a pile of cash and have to invest 100% of it today.  I have a fluid portfolio, I'm ALWAYS investing in my 1st best idea.  My aim is to sell about 10-20% of my portfolio a year and find replacement ideas. 

 

I recently invested in a name that I've watched and finally became cheap.  The only investment in the past few months, so it's my best idea, does that mean the other 30-40 ideas are bad? Nope, they were the best at the time as well, and now I'm waiting on them to be realized.

 

Here's a bad realization for the forum.  In the past ~2 years as I've focused more on my business and less on investing my performance has improved.  I'm looking for fish in a barrel, when I see it I shoot, otherwise I sit on cash or current ideas.  Having this filter has helped me greatly.

 

There's value everywhere, you just need to know the market.  I've been trawling ebay recently and have developed a sense of 'value' for a number of items.  I have picked up about $50k in list price items for roughly $10k.  This isn't an anomaly, my brother does the exact same thing with a different market on eBay, you just need to have a sense of what things go for.  Then be opportunistic when things open up.  I've done the same with Craigslist in the past, study a market, discover what others will pay, then buy for less and resell.  It isn't rocket science, you just need discipline.  No deal is better than a bad deal.

 

I think too many investors complicate investing too much.  Probably because investing attracts smart people.  There are a lot of stupid simple situations that people avoid because they're too simple.

 

Regarding risk, this is an interesting discussion.  I look at risk in terms of probabilities.  Is it likely that I make more or less?  If something is 50/50 it's not worth it.  If something is 80/20 I'm interested.  Sometimes in the market (a net-net, low P/B stock) you can have a 100/0 situation where if you're simply patient it's almost impossible to lose money.  You do have opportunity cost, but as noted above if you diversify you eliminate that.  Most things work out in 3-5 years, if they don't cut your losses and move on.

 

If there aren't deals you just sit.  Deals seem to come in flows, so nothing for a while, then suddenly a bunch.  What I've noticed from friends is too much analysis paralysis is what prevents people from buying cheap.  They want to know why, or how, or what might happen.  I'm reckless, I don't care, if a deal is a deal I buy.  Sure, I've been burned a few times (diversification), but overall it works out 95% of the time in my benefit.  Maybe I'm lucky?  I don't care, I'm happy with the results.

 

 

Never in my life have I owned 30 stocks [*edit* at any one time].  But, then what do I know?

 

 

SJ

 

I currently have 10 different stocks (1 representing 40%) and this is the time with most holdings in my investing lifetime. I think 30 positions is a huge number for anybody to understand and focus on his/her holdings.

[rukawa]

I may be wrong, but isn't Scott the guy that makes investment decisions based on 10-15 minutes of research? In that case diversification is a smart move.

 

:) I spend about that amount of time. I reject in 5 minutes. But then most of my plays are net-nets. I'm really only trying to figure out if the assets and company appear to be real and there aren't obvious disqualifiers (heavy share issuance, capital raises, chinese, dark etc) . I created a habit to spend 15 min a day on investing but these days I have nothing to do. Returns have been good so far but its too soon to tell.

 

I realized a few year ago that I don't know what I'm doing when it comes to investing so I stick to things that are dead simple and a 10 year old can do. And I diversify heavily.

 

I'm not a true investor and I never intend to become one. I'll leave that to all of you  :P

[LR1400]

My biggest mistakes revolve around selling. The desire to follow the “hold forever” mantra has thrown me off. I now realize the hold forever idea is only good for a few companies.

 

I have instituted some definitive sell criteria for myself now, that I hope will allow me to be more disciplined than thinking hold forever/until something fundamental changes.

 

When I look at say, a cheaper company like GE and look at a more expensive one like FB, I understand how FB makes money better than I do GE. I also think FB has higher probability for price appreciation in the next 5 years, despite FB being a “tech” stock and not meeting classic value criteria per se. Same with AAPL.

[abyli]

My biggest mistakes revolve around selling. The desire to follow the “hold forever” mantra has thrown me off. I now realize the hold forever idea is only good for a few companies.

 

I have instituted some definitive sell criteria for myself now, that I hope will allow me to be more disciplined than thinking hold forever/until something fundamental changes.

 

When I look at say, a cheaper company like GE and look at a more expensive one like FB, I understand how FB makes money better than I do GE. I also think FB has higher probability for price appreciation in the next 5 years, despite FB being a “tech” stock and not meeting classic value criteria per se. Same with AAPL.

 

Why You think FB is expensive and GE is cheap? Weird

[Cardboard]

Beating the market? LOL!

 

 

Cardboard

[DTEJD1997]

Beating the market? LOL!

 

 

Cardboard

 

Beating the market?  You would think that the typical denizen of Detroit is prosperous from that video! You would also think that the typical Detroiter is walking around with bricks of cash and Detroit is the place to be! 

 

To be fair, carrying bricks of cash is only for the weekends and holidays....NOT everyday.

;)

[Spekulatius]

My biggest mistakes revolve around selling. The desire to follow the “hold forever” mantra has thrown me off. I now realize the hold forever idea is only good for a few companies.

 

I have instituted some definitive sell criteria for myself now, that I hope will allow me to be more disciplined than thinking hold forever/until something fundamental changes.

 

When I look at say, a cheaper company like GE and look at a more expensive one like FB, I understand how FB makes money better than I do GE. I also think FB has higher probability for price appreciation in the next 5 years, despite FB being a “tech” stock and not meeting classic value criteria per se. Same with AAPL.

 

I think that FB is way cheaper than GE. GE does have a very low cash flow yield that is almost entirely consumed by the dividend, high debt load, pensions issues and probably more accounting skeletons hiding some where in the financial arm.

 

None of the above applies to FB. I think FB FCF yield is equal or higher than GE’s, especially if you take the EV as a denominator rather than  market cap (a bit unfair because GE has a financial arm)

[rb]

Beating the market? LOL!

 

 

Cardboard

 

Beating the market?  You would think that the typical denizen of Detroit is prosperous from that video! You would also think that the typical Detroiter is walking around with bricks of cash and Detroit is the place to be! 

 

To be fair, carrying bricks of cash is only for the weekends and holidays....NOT everyday.

;)

You guys don't have banks out there in D-town?  8)

[StubbleJumper]

Beating the market? LOL!

 

 

Cardboard

 

Beating the market?  You would think that the typical denizen of Detroit is prosperous from that video! You would also think that the typical Detroiter is walking around with bricks of cash and Detroit is the place to be! 

 

To be fair, carrying bricks of cash is only for the weekends and holidays....NOT everyday.

;)

You guys don't have banks out there in D-town?  8)

 

 

To be fair, if you were a banker, would you underwrite mortgages in Detroit?  :P

[DTEJD1997]

Beating the market? LOL!

 

 

Cardboard

 

Beating the market?  You would think that the typical denizen of Detroit is prosperous from that video! You would also think that the typical Detroiter is walking around with bricks of cash and Detroit is the place to be! 

 

To be fair, carrying bricks of cash is only for the weekends and holidays....NOT everyday.

;)

You guys don't have banks out there in D-town?  8)

 

 

To be fair, if you were a banker, would you underwrite mortgages in Detroit?  :P

 

The banking situation in Detroit has changed RADICALLY and there are now SEVERAL mortgages written EVERY YEAR now.  The "no more mortgages" are largely a thing of the past. 

 

Also, quite shockingly, there are even houses being built from time to time....Not a lot, but if you carefully, you can see this taking place.  When I was growing up, there were MANY years when not a SINGLE house (new build) was built within the city limits.