Every year I try to review my portfolio performance and give back some to the TMF community that has given so much to me. Many that I have to thank already learned many of the things I have to share but I pay it forward to the newbie investors and hope that I can give something that will be of benefit to them.
Previous annual posts can be found here:
http://tinyurl.com/retirementdough
http://tinyurl.com/retirementdough2
http://tinyurl.com/retirementdough3
https://tinyurl.com/retirementdough4
On 12/31/2016 my portfolio consisted of the following 14 stocks:
SQ 0.5%
AAPL 0.8%
CLNE 1.6%
SHOP 1.7%
SWIR 3.1%
ILMN 3.3%
GLW 4.0%
BRKB 5.7%
ATVI 6.1%
KMI 6.1%
NFLX 8.7%
AMZN 9.0%
SKX 11.5%
GILD 13.4%
CASH 20.8%
As of 12/25/17 my portfolio consists of the following 19 stocks:
MU 0.2% Saul’s board enticed me into small starter position
AYX 0.3% Saul’s board
FOSL 0.3% TMF1000 and rpanton, recent addition up 18% already
SHOP 1.6% SA and Saul’s board
CLNE 1.8% SA pick, been multiple year loser, but I think long term winner
SWIR 2.5% SA pick, been multiple year loser, but I think long term winner
SQ 2.7% Word of mouth, when someone I know sells a product for co. I buy
WIX 2.8% Saul’s board, awesome looking company
GLW 4.1% SA long term holding, solid company
DIS 4.2% SA not in love with it, but feel it has value
UAA 4.2% SA beat down, growing internationally, recognized brand name
ILMN 4.3% SA genomics trend of future
AMZN 5.4% SA 500lb gorilla owned it semi-early, paired down over the years
ATVI 5.8% SA Esports has a long runway
KMI 8.3% SA energy play-for those battery powered cars
SBUX 8.9% SA solid company, solid brand
SKX 10.2% Saul’s board international growth at a value
BRK.B 13.7% SA safe place to keep some $, Buffet, tax law advantages
GILD 15.6% SA free cash flow cow
CASH 3.0% Very little dry powder
Annual return to date for 2017 (yes a few trading days left in 2017 as I write this) is 29.8%.
Year to date NASDAQ is up 29.2%, the DJIA is up 25.3%, SP500 is up 19.85%. Nasdaq p/e is currently 32.7, DJIA is 21.8, SP500 is 25.25.
Stock that I got out of in 2017; AAPL & NFLX. These 2 companies have been very, very good to me over the years (I have traded in and out of NFLX the past few years). I also owned KITE, which was bought out by GILD. I choose to sell the stock after the announcement but before the buyout as my position in GILD is overweight. Other stocks I traded in and out of this year were WAL, TLND, UBNT, GWRE, ULTA, TRIP, NVCR, NVDA. I did not deploy my cash reserves until mid way thru the year.
I had a total of 62 trades this year, which represented a cost of 0.00076% of my portfolio value for the year. As a comparsion the Vangard VFINX fund which mimics the market with very little costs had an expense ratio of 0.05% or 65 times my expense ratio. Managing your own portfolio can pay.
I have a lot less cash sitting on the sidelines than a year ago. This is due to my stabilizing financial position after starting multiple businesses. I am more confident that I will not have to be using my “retirementdough” as safety net if I have a bad year business wise. The businesses are starting to stand on their own and allowing me to invest more agressively/fully going forward.
My 12 year returns for my portfolio are:
2006 8.32%
2007 6.16%
2008 -32.49%
2009 28.13%
2010 49.34%
2011 3.62%
2012 9.45%
2013 66.99%
2014 10.35%
2015 6.43%
2016 1.58%
2017 29.85%
Overall 12 year average for my portfolio is 15.64%
12 year returns for DJIA 10.91%, S&P500 9.58%, NASDAQ 17.83%.
Look at just past 3 years my portfolio average is 12.62%
whereas DJIA 12.96%, SP500 10.10%, NASDAQ 15.40%
2015 and 2016 where not stellar years for my portfolio. As mentioned before in previous posts I started mulitiple businesses which led for less time for stock research, additionally I did quite a bit of trading in and out of some positions that did not pan out during this time frame. Another factor is that I went into GILD in a big way and the stock has not appreciated in the last 3 years, which is holding my overall portfolio back. However, it is obviously high conviction stock for me and I have no problem holding it for the future.
Things I like about my portfolio, is I feel I can capture emerging markets while owning american companies. WIX, SHOP and SWIR are my only foriegn companies. SBUX, UAA and SKX are growing a lot overseas. I have made an obvious effort to move from the FANG companies, I lightened up my position in AMZN and sold NFLX and AAPL. These are great companies and could be that I made a mistake, time will tell.
The companies I am most excited about for the future are WIX and SQ. I think UAA, GILD, KMI, and GLW are most undervalued currently.
Top 5 holdings are ~57% of portfolio, while the next 6 holdings are ~30%, followed by bottom 8 which make up my new positions which I am learning about the company, more high risk and potentially more likely stocks to not be in my portfolio for the long run.
I feel that the risk/reward profile of my portfolio is a good blend for my long term goals. ~10% of my portfolio does not have earnings, the companies are in growth mode. The other ~85% have a P/E of 21.07 and then there is AMZN at 5.4% with its 290 something P/E (but I think most agree it could increase earnings whenever it wants). When you compare my metrics to the index’s, my portfolio returned similiar to the Nasdaq while its P/E is lower or more comparable to the DJI. I believe my portfolio is less risky with the same reward potential (but its possible I am delusional).
Another point that I would like to make for the newbie investor is the value of compounding interest. I will be turning 43 this coming January. A good friend of mine was commenting that he did not have anything saved for retirement and feared he was too late. I assured him starting right away was the thing to do, but also that he could save a significant amount of money in the next 24 years before he qualifies for social security.
As a practical example I did this exercise for him. I used my annual returns of the last 12 years (see above). As I was a novice when I started and I still am only a part time investor (although a lot more knowledge than when I first began) my returns could be mimiced by anyone. Assuming an individual invested 10,000.00 dollars annually (I use this as a husband and wife could contribute this amount to a Roth annually) at the beginning of the year.
Start with 10,000.00 End of first year 10,832.00
Start of 2nd year 20,832.00 End of 2nd year 22,115.25
Start of 3rd year 32,115.25 End of 3rd year 21,681.01
Start of 4th year 31,681.01 End of 4th year 40,592.88
Start of 5th year 50,592.88 End of 5th year 75,555.41
Start of 6th year 85,555.41 End of 6th year 88,652.52
Start of 7th year 98,652.52 End of 7th year 107,975.18
Start of 8th year 117,975.18 End of 8th year 197,006.75
Start of 9th year 207,006.75 End of 9th year 228,431.95
Start of 10th year 238,431.95 End of 10th year 253,763.12
Start of 11th year 263,763.12 End of 11th year 267,930.58
Start of 12th year 277,930.58 End of 12th year 360,892.85
I ran the next 12 years with my annual results repeated again.
Start of 13th year 370,892.85 End of 13th year 401,751.14
Start of 14th year 411,751.14 End of 14th year 437,115.01
Start of 15th year 447,751.14 End of 15th year 302,276.79
Start of 16th year 312,276.79 End of 16th year 400,120.25
Start of 17th year 410,120.25 End of 17th year 612,473.58
Start of 18th year 622,473.58 End of 18th year 645,007.12
Start of 19th year 655,007.12 End of 19th year 716,905.29
Start of 20th year 726,905.29 End of 20th year 1,213,859.14
Start of 21st year 1,223,859.14 End of 21st year 1,350,528.56
Start of 22nd year 1,360,528.56 End of 22nd year 1,448,010.55
Start of 23rd year 1,458,010.55 End of 23rd year 1,481,047.12
Start of 24th year 1,491,047.12 End of 24th year 1,936,124.69
I used this date as my friend will be 67 in 24 years. Now of course one would hope that you would increase contributions going forward. If this was done in a ROTH IRA the $1,936,124 would be tax free (if the laws do not change between now and then). Of course if one starts to save in their early 20’s or younger the principles of compounding interest are phenomenal.
In my earlier posts (links above) I talk about frugality. My wife and sacrificed financially for a ten year period between early 20’s to early 30’s. After that our accurred retirement savings allowed us to not have to be so frugal. My wife stayed at home when the kids were young, then went back to work for a short time. Now my wife does not work, we go on expensive vacations, eat out when we want, and buy newer cars. I do not say these things to brag, but to make a point. One does not have to sacrifice financially forever but it must be done for a time to get “ahead”. The earlier the better. If you start later you may have to sacrifice longer.
One last point. Many, many people do not want to be “bothered” with investing their money. I am assuming most here reading these boards, are not in this group. It seems that most of those folks that do not want to be “bothered” also tend to dislike their jobs (not all, but at least half in my experience). The easiest way to change your career or job is when you have a nice sum of money set to the side. You can legally take out any Roth contributions without penalty for any reason (and tax free since you already paid your taxes on those investments).
Let’s use the example above and say you started saving at 22 years of age and when you were 37 you had $447,751 in your Roth IRA. You could pull the the 15 years of 5,000 a year (total of $75,000) out tax and penalty free. You would still have ~373K going forward in your Roth. You could then use that 75k to start a business, get a degree in something of interest, or take a lesser paying job that would get you the experience to get ahead in a different field. Basically it would give you flexiblity and choices or what some people refer to as freedom.
Being frugal for a time, investing your money and owning your investments gives you financial independence, choices and freedom!