Your returns in 2013

[Ross812]

Just following up a bit on Uccmal's very good post, the problem with these kinds of threads is that they inspire greed and envy.  That's a deadly combination.  It makes people do things they might not ordinarily do.  As Oddball posted the other day with a link to the Bogleheads board, average people don't have anywhere near the returns that even the "poor performers" on this board have achieved.  There are people lamenting 20% and 30% returns like their world has come to an end and they might as well hang up their investing spikes forever. 

 

So what will happen?  It's the same thing here as in the threads on leveraging up with options.  People will look at those who got gaudy returns and try to emulate them.  The thing is that the people who got these returns are very smart, very experienced and very good at what they do.  It's not the kind a thing a novice is going to just pop in and do.  Yet, that is what many will try.  The problem is that when the music stops the experienced will grab a seat while the novices will be left dancing for a few minutes until they realize the music hasn't been playing for a while. 

 

Know thyself.  Figure out what you are good at and what is comfortable for you.

 

This is really good advice. All the threads started about leverage are just confirmation.  The process is far more important than the result. Pay attention to what SharperDingaan said as well:

 

Re the outsized returns:

It is highly likely that most of these portfolios are very small; it doesn't take much to move the dial.

There is material survivor bias; it is highly likely that without the boards feedback most would have had far worse reversals - & some of them fatal.

The portfolios are usually all equity, & not blue chip; betas > 1.0 are exagerating market gains.

Risk/return is not really a consideration, & nor is compound YOY return.

 

Most folks on this board would probably average around a 9-18% compound annual return over the next 10-15 years - by simply developing thier own approach & sticking with it. For many, that is essentially a fully paid off house by around age 50, inclusive of the expense of spouse & kids. Hard to knock.

 

SD

 

 

 

 

 

[onyx1]

Just following up a bit on Uccmal's very good post, the problem with these kinds of threads is that they inspire greed and envy.  That's a deadly combination.  It makes people do things they might not ordinarily do.  As Oddball posted the other day with a link to the Bogleheads board, average people don't have anywhere near the returns that even the "poor performers" on this board have achieved.  There are people lamenting 20% and 30% returns like their world has come to an end and they might as well hang up their investing spikes forever. 

 

So what will happen?  It's the same thing here as in the threads on leveraging up with options.  People will look at those who got gaudy returns and try to emulate them.  The thing is that the people who got these returns are very smart, very experienced and very good at what they do.  It's not the kind a thing a novice is going to just pop in and do.  Yet, that is what many will try.  The problem is that when the music stops the experienced will grab a seat while the novices will be left dancing for a few minutes until they realize the music hasn't been playing for a while. 

 

Know thyself.  Figure out what you are good at and what is comfortable for you.

 

This is great advice.  Greed and envy are an unavoidable part of being human.  Until about five years ago I earned my living via employment and was paid salary + annual bonus, and the bonus was substantially all of my total compensation, so basically I was paid once per year.  When I was in my early thirties I received a monster (at the time) bonus that represented over 10 times what I had been paid in any given year of my life, and more that my own father ever made in a year.  Time for confetti and champagne, right?  Crazy as it seems, my reaction was anger,  Why?  The guy next to me got paid 30% more than me!!!  Oh my god, the humanity!  I took me some time to recognize the absurdity and years later I finally understood that life is not a zero-sum game.  Year after year I witnessed the same reaction from younger people in my organization.  Some got it, others didn't.

 

[sigis]

Don't get me wrong, I realize that 24% return is great in abstract but in the year when SP500 returned 30% it does look mediocre. If you think comparing yourself to a benchmark or other investors is greed or envy or just not worth it, its fine, but to me it provides some additional data points that hopefully keeps me intellectually honest with myself and helps me to improve. This board provides a lot of investment ideas but it is also gives real time accounts of how other investors think and react - to me this is just as valuable if not more. I read a lot of threads from 2008-2012, and they were great! I do think my results would have been positively affected if I discovered this board earlier.

 

 

 

[merkhet]

I wholeheartedly agree with the last ten posts or so.  For myself, I know that my 100%+ returns this year were a combination of fundamentally cheap stocks and really good timing on entering and exiting certain positions. (If I had held MBIA past the week of the settlement, my returns would have been materially lower.)  This is unlikely to repeat in 2014.

 

Also, I suspect that the average retail investor will be quite envious of the 30%+ move in the markets, and they're liking having quite a bit of FOMO.  I would expect them to start wading back in soon, and that's as good a contrarian signal as anything else.  As Mr. Buffett says, "the less prudence with which others conduct their affairs, the more prudence with which we must conduct ours."

 

This is really good advice. All the threads started about leverage are just confirmation.  The process is far more important than the result. Pay attention to what SharperDingaan said as well:

 

I thought the exact same thing when I saw those threads pop up!  My spidey-sense was tingling.

 

The only caveat to my increasing levels of fear is the fact that the economy may actually be picking up steam for the first time in the last five years...

[rkbabang]

Don't sell yourselves short.  I think you are both excellent investors, way above average, and way better than I.  I've seen people say that they copy other investors and don't have original ideas. What is an original idea anyway?  An idea where you are the first one to invest in the company?  Any public company has had investors prior to you, so an original idea is impossible.  It doesn't matter where you found the idea, only that you understood it and put your money into it and earned the return.

 

That’s a very good way to put “original ideas” into the right perspective! ;)

 

I simply believe in frugality and in the importance of shrewd capital allocation. My whole business experience tells me that those two things can take you far, very far. Therefore, I try to save as much as I can, and I try to keep company with shrewd capital allocators. I don’t think this is enough to qualify even as a good investor, let alone an “excellent investor”… Anyway, thank you very much! :)

 

You are welcome Gio, in fact one obvious thing that I forgot to point out is that by my definition the only way to claim to have had an original idea is to start your own company, making you the first investor of both time and capital.  This is something you have done that I and many others have not.

 

[Hielko]

Don't get me wrong, I realize that 24% return is great in abstract but in the year when SP500 returned 30% it does look mediocre.

But you're basically picking the best performing benchmark of 2013. Most investors also allocate money to international equities and other asset classes such as bonds, commodities or real estate.

[xtreeq]

I find that I sometimes enjoy the mental game far more than the actual returns! I think Gio is the same in this way ;)

 

Yes! Of course!!

Go to twacowfca, Eric, Packer, Al, Kraven, Onyx1, Sanjeev, etc. for actual returns…

But come to me, if you want to enjoy the mental game!!

;D ;D ;D ;D

 

Gio

 

 

 

Meraviglioso Gio, ma si ottiene anche i risultati :D      Andiamo!

[Kraven]

Just following up a bit on Uccmal's very good post, the problem with these kinds of threads is that they inspire greed and envy.  That's a deadly combination.  It makes people do things they might not ordinarily do.  As Oddball posted the other day with a link to the Bogleheads board, average people don't have anywhere near the returns that even the "poor performers" on this board have achieved.  There are people lamenting 20% and 30% returns like their world has come to an end and they might as well hang up their investing spikes forever. 

 

So what will happen?  It's the same thing here as in the threads on leveraging up with options.  People will look at those who got gaudy returns and try to emulate them.  The thing is that the people who got these returns are very smart, very experienced and very good at what they do.  It's not the kind a thing a novice is going to just pop in and do.  Yet, that is what many will try.  The problem is that when the music stops the experienced will grab a seat while the novices will be left dancing for a few minutes until they realize the music hasn't been playing for a while. 

 

Know thyself.  Figure out what you are good at and what is comfortable for you.

 

This is great advice.  Greed and envy are an unavoidable part of being human.  Until about five years ago I earned my living via employment and was paid salary + annual bonus, and the bonus was substantially all of my total compensation, so basically I was paid once per year.  When I was in my early thirties I received a monster (at the time) bonus that represented over 10 times what I had been paid in any given year of my life, and more that my own father ever made in a year.  Time for confetti and champagne, right?  Crazy as it seems, my reaction was anger,  Why?  The guy next to me got paid 30% more than me!!!  Oh my god, the humanity!  I took me some time to recognize the absurdity and years later I finally understood that life is not a zero-sum game.  Year after year I witnessed the same reaction from younger people in my organization.  Some got it, others didn't.

 

Onyx, this is great.  So true.  Some get it, some don't.  Those that do are much happier in life.  At some point you realize that "ready, fire, aim" isn't a fun way to live and you just don't feel like getting up each morning ready to bite the ass off a bear.

[Kraven]

Don't get me wrong, I realize that 24% return is great in abstract but in the year when SP500 returned 30% it does look mediocre. If you think comparing yourself to a benchmark or other investors is greed or envy or just not worth it, its fine, but to me it provides some additional data points that hopefully keeps me intellectually honest with myself and helps me to improve. This board provides a lot of investment ideas but it is also gives real time accounts of how other investors think and react - to me this is just as valuable if not more. I read a lot of threads from 2008-2012, and they were great! I do think my results would have been positively affected if I discovered this board earlier.

 

I think you have missed the point.  Comparisons are fine.  More data is fine.  If there is something that can be done better, than one should do that.  There is a difference between eyeing your neighbor for informational purposes and coveting what thy neighbor has.  If you can use the information to better yourself, then that is good.  If it makes you do things you wouldn't normally do and be comfortable with that is not good.

 

 

[sigis]

Don't get me wrong, I realize that 24% return is great in abstract but in the year when SP500 returned 30% it does look mediocre. If you think comparing yourself to a benchmark or other investors is greed or envy or just not worth it, its fine, but to me it provides some additional data points that hopefully keeps me intellectually honest with myself and helps me to improve. This board provides a lot of investment ideas but it is also gives real time accounts of how other investors think and react - to me this is just as valuable if not more. I read a lot of threads from 2008-2012, and they were great! I do think my results would have been positively affected if I discovered this board earlier.

 

I think you have missed the point.  Comparisons are fine.  More data is fine.  If there is something that can be done better, than one should do that.  There is a difference between eyeing your neighbor for informational purposes and coveting what thy neighbor has.  If you can use the information to better yourself, then that is good.  If it makes you do things you wouldn't normally do and be comfortable with that is not good.

 

Your last two sentences contradict each other. Part of improving is doing things that you wouldn't have done before. The trick is to figure out what you should change and what you shouldn't, and there are no shortcuts for that, some learn better and faster than others.

 

I agree with you that there will be those that attempt to replicate this years results taking way more risk than they should but doubt that this thread has anything to do with it, it is just human nature.

[Kraven]

Don't get me wrong, I realize that 24% return is great in abstract but in the year when SP500 returned 30% it does look mediocre. If you think comparing yourself to a benchmark or other investors is greed or envy or just not worth it, its fine, but to me it provides some additional data points that hopefully keeps me intellectually honest with myself and helps me to improve. This board provides a lot of investment ideas but it is also gives real time accounts of how other investors think and react - to me this is just as valuable if not more. I read a lot of threads from 2008-2012, and they were great! I do think my results would have been positively affected if I discovered this board earlier.

 

I think you have missed the point.  Comparisons are fine.  More data is fine.  If there is something that can be done better, than one should do that.  There is a difference between eyeing your neighbor for informational purposes and coveting what thy neighbor has.  If you can use the information to better yourself, then that is good.  If it makes you do things you wouldn't normally do and be comfortable with that is not good.

 

Your last two sentences contradict each other. Part of improving is doing things that you wouldn't have done before. The trick is to figure out what you should change and what you shouldn't, and there are no shortcuts for that, some learn better and faster than others.

 

I agree with you that there will be those that attempt to replicate this years results taking way more risk than they should but doubt that this thread has anything to do with it, it is just human nature.

 

Perhaps I didn't state it eloquently enough for you.  I apologize for trying to do 3 things at once.  I think you understand what I mean.  There is a difference between improving in a natural way and attempting to do things that no matter how much someone wants it or tries one isn't capable of doing.  I know that everyone likes to believe they are a resident of Lake Wobegon, but unfortunately they are not.

[txitxo]

There are people lamenting 20% and 30% returns like their world has come to an end and they might as well hang up their investing spikes forever. 

 

Not me! Actually, I have said I am very happy with my returns in 2013! ;D ;D

 

Gio, you certainly should be happy. If the US market had blown up last year, your relative position in the rankings would have been very different. And it may be very different next year. If you look at all the world markets with CAPE>~ 20, the only one which didn't tank, and actually went up significantly, was the US market. Nowadays the market consensus, even among the bears (very scary!) is that it will keep going up…well, good luck. It'll be needed. Even if one accepts Siegel's corrections, it is still one of the highest CAPE markets in the world.

 

  In my case I didn't want to run the risk of investing in the US market but still managed 41% in the European-only stock portfolio vs 21% + dividend for the BE500. I used no leverage and owned about 50 stocks selected almost blindly using my screens. All the markets I invested in had CAPE < 15, what made very unlikely a major crash and let me be fully invested. I don't need 150% returns, I just ask for 10 more years like this…:)

 

 

[SharperDingaan]

Perhaps the best lesson for us all .... is everyday recognition that money is the servant, not the master.

 

Last year we won, but did you take some of that win off the table to make your life going forward better (ie: extra mortgage/student loan payments, crossed off a bucket list item, etc.). And if you did not take money off .... then just what, exactly, did this servant actually do for you.

 

We are in a casino; & we all could lose at any time.

 

SD

 

 

[infinitee00]

Just following up a bit on Uccmal's very good post, the problem with these kinds of threads is that they inspire greed and envy.  That's a deadly combination.  It makes people do things they might not ordinarily do.  As Oddball posted the other day with a link to the Bogleheads board, average people don't have anywhere near the returns that even the "poor performers" on this board have achieved.  There are people lamenting 20% and 30% returns like their world has come to an end and they might as well hang up their investing spikes forever. 

 

So what will happen?  It's the same thing here as in the threads on leveraging up with options.  People will look at those who got gaudy returns and try to emulate them.  The thing is that the people who got these returns are very smart, very experienced and very good at what they do.  It's not the kind a thing a novice is going to just pop in and do.  Yet, that is what many will try.  The problem is that when the music stops the experienced will grab a seat while the novices will be left dancing for a few minutes until they realize the music hasn't been playing for a while. 

 

Know thyself.  Figure out what you are good at and what is comfortable for you.

 

Thanks Kraven and oddball for bringing some perspective into the discussions. Contrary to what many believe, I think greed and envy can be great motivators, as long as you don't lose perspective of the long road ahead and don't engage in anything foolish or harmful to yourself or others ( easier said than done, I know). I agree that the eye-popping returns mentioned in this thread may inspire people to do foolish things and we need to be constantly vigilant of our decisions and look beyond the shorter term. Even though almost every value investor I have interacted with agrees that they invest for the longer term, sometimes greed and envy makes us lose that perspective. Some here make it look like a 100m dash instead of a marathon, and who cares which athlete was the leader during the 15th mile of the race ( not to mention that in the investing marathon, completing the race with a decent return is more important than leading the race for the first 15 miles and then pulling a hamstring). Here is a <a href="http://www.businessinsider.com/isaac-newton-and-the-south-sea-bubble-2013-4">chart of Sir Isaac Newton's investment mistake during the South Sea Bubble</a> that I use to remind myself to keep my greed in check.

 

This year, even though I wasn't too happy with my results,I still thought they were OK, until I came across the returns on this thread. My first thought was - " I really sucked this year". When the initial reaction wore off, I thought maybe I was being a little hard on myself. I have 2 taxable portfolios (for some weird historical/legacy reasons) and my retirement portfolio (IRAs). Both taxable portfolios returned approx. 25% and my IRA portfolio returned ~50%  ( but the amount in my IRA is so small that mentioning the return sounds silly). This was the 3rd year in the last 4 years ( I started tracking my performance 4 yrs ago), that my returns were >= 25%, so why was I feeling bad about it? (Yeah, Yeah ! I know - "Everyone is a genius in a bull market.")  ;)

 

Could I have done things better this year ? Absolutely. I was too greedy ( and foolish) with FRMO, KIRK, SHLD etc. I should have invested in them instead of waiting for another 3-5% drop and then anchoring bias took over - really dumb on my part. Also, I started the year with 35% cash and ended the year with 48%, with cash never going below 29%. This was probably too much cash and I should have invested in some 50-60c dollar type investments instead of waiting for the 30c dollar types ( I have a strange tendency of making my investment criteria stricter when markets keep climbing higher). Those 50c dollar investments became almost fully valued, so I lost out on that ( something I am trying to work on).

 

Moreover, the few stocks I am short moved against me, and even though I am still short those stocks, it affected my yearly returns. Could I have done anything different with my shorts? Other than correctly sizing my position on one of them, I don't think so. Just as undervalued stocks can remain undervalued for years, overvalued/fraudulent/gimmicky stocks can remain euphoric for years. Thankfully, all of them are very liquid, none of them pay dividends and the borrow costs are very low, so I am comfortable holding onto them for now. I also started slowly selling parts of my long positions that appreciated considerably ( even though I knew there were still undervalued). Had I held on to them, my returns would have been at least another 5% higher, if not more. Again, this was a deliberate decision and I chose caution over greed - given the frothiness of the market - but I feel I started selling a little to early (hindsight bias maybe).

 

Anyway, I appreciate the "know thyself" message. It definitely helps to be constantly reminded of it and keep us from making foolish mistakes. Congratulations to everyone that had a positive return this year and I am sure given the caliber of talent on this board, we will keep doing much better than the average investor for many more years to come.

 

 

[BG2008]

I think it is important to learn from others who have dramatically outperformed.  It would probably help to go back in prior years (particularly in 08/09) and see how their strategy fared.  And then you further calibrate it by trying to figure out whether their performance is due to getting 10 heads in a row or they were truly 98% odds that you'll make 2x your money done over many years.

 

Regarding jealousy and envy.  I believe that one should naturally be curious why others are earning 50-100%.  Is it rising tides lifting all boats?  Or are they onto something that you never contemplated in the past.  Eric's strategy of going long the stocks and buying an ATM put is brilliant.  It's essentially a call option, but it is tax efficient and it makes it easier to size the position properly since you can size up the long position as a X% of total assets fairly easily.  Let's say you discovered a 20 punch card opportunity tomorrow.  Why not go 30, 50, 100% and buy an ATM put that cost 10% premium for 1 year?  By definition, a 20 punch card opportunity has at least a 3x upside.  Buying the ATM put hedges against market risk and maybe some analytical risk against your miscalculation.  I would've never thought to structure my trades this way until Eric mentioned it. 

 

In short, be motivated and curious about how others did it.  Invert.  Learn.  If you feel like there truly is nothing to learn or others' strategy just don't suit your personality whether it's extreme volatility (you need to withdrawal for living expenses), high debt loads, etc. then just stick with what you're comfortable with. 

 

Good luck to everyone going into 2014. 

[beerbaron]

Congrats to everybody with outliers returns it shows how much great minds there is around here. My returns were 23% which is a notch above my index of 50% S&P TSX/50% S&P500. I'm fairly satisfied with it because I have been running my portfolio with 30% cash and that I clone other great investor's ideas (little time invested and ridiculously low fees). 5 Years ago I told myself I would start investing in index funds if I underperformed my comparative index. I am happy to announce that you will see my posts around for another year at least :).

 

For those that might feel pain reading returns above 30%, 50% or even 100% let me just provide you with two quotes:

 

"Rule number one, don't lose money. Rune number two, don't forget the first one"

 

"Envy is the worst of the sins because it gives no pleasures"

 

I wish everybody an exceptional year in their life and for those that are less fortunate, the strength to face their challenges. As state previously money is the servant.

 

BeerBaron

[LC]

Finished 40% for the year. I am satisfied with my analysis and finding undervalued stocks, but I have to work on my technical and emotional skills in terms of trading. So much thumb sucking!

 

For example, SHLD calls I was down 50% at one point...and the fact that they were so cheap...I should have purchased more but I was fearful. And to make matters worse, I put in a limit order to sell my entire position at a 20% gain. At the time, I was so angry for purchasing them at what seemed like a high premium that I simply wanted to exit with an acceptable gain. Then, I forgot I put in the limit order and did not cancel it as the share price was rising. Definitely my most embarrassing moment of the year...very rookie mistake.

[giofranchi]

  In my case I didn't want to run the risk of investing in the US market but still managed 41% in the European-only stock portfolio vs 21% + dividend for the BE500. I used no leverage and owned about 50 stocks selected almost blindly using my screens. All the markets I invested in had CAPE < 15, what made very unlikely a major crash and let me be fully invested. I don't need 150% returns, I just ask for 10 more years like this…:)

 

Congratulations txitxo! ;)

You already know what I think:

 

1) Your strategy is awesome and works extremely well! :)

 

2) I don’t have the right mindset to follow your strategy (I like business and its dynamics too much… I always want to understand deeply what I own… I simply don’t like owning what I think I don’t understand clearly)

 

3) Sorry, but you probably won’t compound at 41% annual for the next 10 years (let’s say your portfolio is worth 500k Euros, while probably it is worth a lot more!, compounding at 41% annual for the next 10 years would bring your net worth to around 15.5 million Euros! In my experience, that’s something even a very good business won’t be able to do for you…). Of course, I hope for you that I am dead wrong!!

 

All the best and keep up the good work!

 

Gio

 

[txitxo]

 

3) Sorry, but you probably won’t compound at 41% annual for the next 10 years (let’s say your portfolio is worth 500k Euros, while probably it is worth a lot more!, compounding at 41% annual for the next 10 years would bring your net worth to around 15.5 million Euros! In my experience, that’s something even a very good business won’t be able to do for you…). Of course, I hope for you that I am dead wrong!!

 

 

  Of course I won't get 41%/year :) …that's why I am trying to express by spending some of my 20 emoticon punches...

 

  I have just done the numbers, out of curiosity, and our net worth has compounded at 14.5% for the last ~20 years. Not impressive, compared with many people in the forum, but not so bad, specially taking into account that I only started reading seriously about investing in 2005 and we had to go through a housing bubble and two stock crashes.

 

  Anyway, if we are still around , I will tell you how we are doing in 2024... :) (there goes another smiley)

 

[giofranchi]

  I have just done the numbers, out of curiosity, and our net worth has compounded at 14.5% for the last ~20 years. Not impressive, compared with many people in the forum, but not so bad, specially taking into account that I only started reading seriously about investing in 2005 and we had to go through a housing bubble and two stock crashes.

 

Well, maybe it is not impressive to other board members… but it surely is very impressive to me!! ;)

 

Cheers,

 

Gio

 

[Mikenhe]

Perhaps the best lesson for us all .... is everyday recognition that money is the servant, not the master.

 

Last year we won, but did you take some of that win off the table to make your life going forward better (ie: extra mortgage/student loan payments, crossed off a bucket list item, etc.). And if you did not take money off .... then just what, exactly, did this servant actually do for you.

 

We are in a casino; & we all could lose at any time.

 

SD

 

yes.

 

I finished the year up 30% - could have been higher but I cashed out to buy a house. I'm now mortgage free which improves my cash flow per month and will increase my quality of life (I hope). also now have the peace of mind of have control over the house - and that makes a big difference to us as a family.

 

I could have kept the money invested and been better off on paper but a you say - you have to make money the servant.

 

Is there any point in investing your time in stock picks and reading everything you do if you then proceed to do nothing with the profits from that?

[Packer16]

Below is Bogleheads performance bell curve for comparison:

 

http://www.bogleheads.org/forum/viewtopic.php?f=10&t=129567

 

If we translate it to our bins, we get: less than 10% - 11%; 10 to 25% - 73%; 25 to 40% - 16% and above 40% - 0%.  We do appear to have an above average group here.

 

Packer

[Hielko]

You have to ask though how many independent samples there really are in the CoBF results (and the same can be said about the bogleheads performance). If almost everybody invests in AIG, BAC and a few other names, and those names outperform: what does it exactly say?

[merkhet]

You have to ask though how many independent samples there really are in the CoBF results (and the same can be said about the bogleheads performance). If almost everybody invests in AIG, BAC and a few other names, and those names outperform: what does it exactly say?

 

That they were really undervalued. :)

[ERICOPOLY]

You have to ask though how many independent samples there really are in the CoBF results (and the same can be said about the bogleheads performance). If almost everybody invests in AIG, BAC and a few other names, and those names outperform: what does it exactly say?

 

That they were really undervalued. :)

 

It says we were lucky that a planetary extinction event did not happen during our holding periods.  Any positive returns are merely a result of this luck.  We are biased by the outcome believing it to be the only possible outcome.  We are fooled by randomness.

 

(some people try to elevate themselves by talking this way, so I figured I'd give it a try)