It drives me crazy when people come in and take Saul’s results by year (which he’s provided dating back to 1993) and say “yes, but you didn’t ALWAYS beat – sometimes for a 10-year period!” Who cares? Let’s actually analyze these results and hopefully put this to bed.
From 1993 to 2016, there are 15 consecutive 10-year periods. 1993-2002, 1994-2003, and so on. Out of these 15 ten-year periods, how many do you think Saul beat the market? Answer:
- The only ten-year periods he underperformed were the ones ending in 2014, 2015, and 2016. With 2008 included early in each of those, it’s not hard to see why.
12/15 is a great record, but it doesn’t tell the whole story. In fact, it’s not even close. If you start the 3 losing periods with 100 bucks, Saul would have ended on average with $172 bucks while the S&P would have gotten you $201. Let’s call it $250 with dividends. So clearly a nod to the S&P in those 3 years.
But here is the crux. Don’t miss it. The 12 ten-year periods Saul outperformed, how much do you think he outperformed on average? He got beat by the S&P by maybe 80 bucks on average. Did he beat by 100? 200? 300 even???
No. On average, Saul would have turned $100 into $1,297 in each 10-year period. The S&P? $191. Again, call it $250. Call it $300. Saul still averaged not $100 better, not $300 better, but $1,000 better each 10 year period. And that’s starting with 100 bucks.
Another way to put it? He averaged a 12-bagger every 10 years.
Can we stop doubting, please? Maybe it’s not jealousy. Maybe it’s just bad math. But please see the above and don’t just be lazy about it saying, “well, he didn’t ALWAYS beat.” I truly believe you’re better than that.
<<<But please see the above and don’t just be lazy about it saying, "well, he didn’t ALWAYS beat." I truly believe you’re better than that.>>>
Neither did WalMart, Warren Buffett, Microsoft, Apple (OMG did Apple not always beat), Amazon, et al.
No one always beats. Everything goes in streaks. Look at Roger Federer and Rafael Nadal, both once utterly dominant, both dropped to being mortal, and now both are back at the top of the game. They did not always “beat”.
Trading is about always beating, and by trying to always beat you almost always lose in the end.
Investing is decreasing your risks and enhancing your returns, and time is on your side, and the best of the best (if you are so inclined to invest in such) are working for you, using their own self-interests and competitive natures, to build as much incredible value as they can for their businesses. Such work usually succeeds far more often than not if you do not worry about not always beating.
The loudest critics are the one’s watching from the sidelines…They are holding large percentages of cash, citing that the Shiller PE Ratio is at 31.56 and the market is overpriced…
Great analysis Bear. The same thing holds true for an individual stock. Take Nvidia for instance. There are long periods of time where it did not beat the market but anyone who held through all that would not be complaining now. That is the major difference between being a stock holder versus an index fund holder. You’ve got to be able to take the ups with the downs and the winners with the losers.
Here are Saul’s annualized 10-year results compared to the total stock market.
Saul VTSMX Diff
2002 27.5% 7.7% 19.9%
2003 34.8% 9.4% 25.5%
2004 35.0% 10.6% 24.4%
2005 32.4% 8.2% 24.2%
2006 30.3% 7.8% 22.5%
2007 30.8% 5.7% 25.1%
2008 19.1% -0.6% 19.7%
2009 18.9% -0.3% 19.1%
2010 17.0% 2.2% 14.8%
2011 11.4% 3.4% 8.0%
2012 11.6% 7.1% 4.5%
2013 7.7% 7.2% 0.4%
2014 5.2% 7.2% -2.0%
2015 5.2% 6.7% -1.5%
2016 4.7% 6.4% -1.8%
The 10-year outperformance in the early years resulted from Saul’s mega crushing the index in
the years 1999-2003. The 10-year underperformance in the later years resulted from the index
crushing Saul in the years 2008, 2010, 2011, 2014, and 2016.
But here is the bottom line: results can be manipulated to support most any view. There aren’t
enough data points to make a reliable claim – on either side. In my experience you are much
better off focusing on risks – and cautioning people about risks – than trying to justify a
strategy based on a limited (and pliable) data set.
I think you guys are focusing too much on process, and not enough on the substance. The substance is that the best companies in the world, invested in for the long-term, when not bought at bubble prices, will outperform the market.
Why? The market is an average of all, the mediocre, simply awful, to incredible. Within this realm, like within most realms, the finest of the crop will bring the averages up, and if you dump the laggards, by the very definition of average, your results will outperform over time. PERIOD.
And how do you find the superior companies? Look at growth rates, market share, market dominance, profit margins, quality of management, past price appreciation, in the end CAP and SAM (Serviciable Addressable Market). A company with a high CAP (competitive advantage period - which equals how long the company’s superior ability to compete will last, and how large that advantage is relative to others), will consume its SAM, and grow its SAM.
Disruptions will occur, and can be followed. Bubbles will happen and can be followed. Fundamentals can change and can be followed.
But in the end, if you limit yourself to such companies you will outperform. It is not difficult. It is just that very few people understand this and instead focus on simply not losing money, and therefore settling to be average or less.
Thanks, Bear for putting pencil to paper and justifying the statement with some math. It helps me re-confirm my desire to move to a smarter approach. I sold Oracle and some of BRK-B earlier this month. My “new attitude” investments are paying off, and it’s time to let them fly without the weight of my stalwarts. Baby steps.
What a great community we have!