Buying 50 cent dollars or earning 50 cents

[twacowfca]

Don't you wish it weerre in a Roth?  Isn't 20/20 hindsight great.

 

I think Eric said he was or had been working for Microsoft before he got control of his 401K.  If so, he may not have met the income requirements for contributing to a Roth then.  It is amazing what can happen when there is no tax on compounding returns. 

 

In late 2001, I was able to self direct a close relative's 401K.  At that time the funds were in a money market account with a balance of about $250 plus some zeros. That year ended with a gain of less than 10%. The following February, there was a contribution to the 401K of about six percent of the balance, and the year end balance again rose about an additional 10% by the end of 2002. After that, it was off to the races with mostly mid double digit returns plus one triple digit return, except for 2008 which was about flat in that account.  Since 2008, the balance in that account has about tripled.

The current balance is about 38 times the balance around the end of Q3 of 2001 when active management began. 

 

These returns have been generally unlevered.  For instance, this account did not purchase any of the FFH calls in 2006 that were such a coup in most of the other accounts.  This account held long positions in common stocks generally for a few years until sold as full value was approached.  One to three stocks have accounted for most of the balance in this account during most years.

 

The contributions to the 401K did significantly increase the returns in the early years of active management, but added only a fraction of one percent to the returns in recent years.  This account was recently converted to a Roth account.  It now can compound tax free through the next generation.  :)

 

So you turned $250,000 into $9.5 million in 10 years, compounding the account at 44% annually, all I can say is wow.  I'd be curious to know your strategy.  Considering that only about $300k was ever contributed that would have been one heck of a tax bill at conversion, writing a check to the Gov for $2.7m would be killer, I guess it wasn't your money so it's not as bad.

 

Here I am thinking if I follow the Graham & Dodd stuff I might have the chance to compound my money at 15% annually, and then I come on this board and it's as if everyone has these 20-40% annual returns for decades, it's very strange.  I understand now why a lot of people around here are private investors, why work for someone else when you can double your money every other year.

 

This thread has been eye-opening..I'd love to hear other people's experiences.

 

My best guesstimate is that this account had returns in the high thirty percent per annum range because of the contributions to the account.  There was a contribution of about 6% of the account balance in early 2002 and another contribution of about 5 1/2% of the account balance in early 2003. Then, the account balance accelerated in Q2 of 2003, which was the triple digit year for returns.  After a couple of more years, the impact of contributions on the account balance was about 1%.  Soon afterwards, even less.

 

Five companies produced the great majority of the returns during the active management of this account ( and the other accounts as well ).  At one time or another, each of these companies accounted for more than half the assets in the accounts.  Four of these companies seemed to violate rules of prudent investing at the time their stocks were first purchased.  Two of them were companies in Cpt. 11, normally a quick way to lose all your money.  But these were companies that had become highly solvent while they were in Cpt11 with CEO's and major shareholders who were determined to fight for maximum value.

 

Another was an insurance company with serious adverse reserve development and accusations of fraud leveled against it, normally two huge red flags for investing.  However, those accusations were belied by the facts and the support of outstanding, ethical value investors who backed the company.  It appeared that the reserves could be replentished, given time and good management which was the norm through most of that company's history.

 

The fourth company was a recent IPO. IPO's are usually a graveyard for investors except in a bubble.  However the CEO of the new company had had a Buffett like record of world class returns in his former job, and the IPO was launched into a sweet spot for returns for that industry subsector.

 

This year, returns will probably be modest because of the defensive nature of much of the holdings, esp. FFH and BRK.  Even so, returns could be satisfactory, although not spectacular, because  they could be goosed a little bit by some leaps on BRK, a stock that won't shoot the lights out, but won't go down much either.  And who knows how well FFH may do with its hedges if things in Europe get even uglier and if the US tax cuts are allowed to expire as scheduled?  :)

[jb85]

I'd actually be curious for anyone on the board, any names of investors who are completely self made?  I mean they started with a nominal savings, never managed any money and invested their way to multi-millionare status?

 

My RothIRA  (as of March 31st 2012) was up roughly 185x "since inception", which was in January 2003 (+18,473%).

 

$10,818 is the start balance necessary for it to be "multi-million" on March 31 (however you probably had more than 2 million in mind).

 

Of course, I'm not sure this qualifies under "investor" -- could just as easily file it under "speculator".

 

Since I'm a little late to the board--was that essentially from the FFH LEAPS during the short attack?  (+BAC wins this year?)

 

That was a terrific year (2006), but a lot has gone well since then:

 

YTD:  +136.25%

1 yr:  +26.57%

3 yr:  +83.94%

5 yr:  +80.68%

since inception 1/31/2003:  +76.87%

 

These numbers are as of 3/31/2012.  Account has declined 17.5% since then (because of the BAC pullback).

 

So the 76.87 is an annualized figure.  But are the 83.94 and 80.68 also annualized or are they absolute returns?