Beating the Market

Investment Analysis Clubs Saul’s Investing Discussions
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A little while ago in post number 20928, I made the following comment:

I don’t think beating the market is difficult.

Just put your money into a small selection of quality compounding businesses.

I would suggest MIDD TDG MKL GOOGL AMZN SBUX V MA CASY DIS

Go away for ten years and you will beat the market no problem.

But that is too easy, so instead we spend our time diving in and out of speculative story stocks, semi-conductors etc. And wonder why it is so hard.

Now I will retire to a dark room and try and work out why I am incapable of following my own advice…

This started me thinking. I had also been involved in a little writing project recently, and with that in mind as well, I said to myself, ‘If that’s what I think, why shouldn’t I nail my colours to the mast and put up a portfolio which I am confident will beat the market?’.

So I’ve done just that. You can see the result at http://www.digigrator.com/the-portfolio/

I haven’t set myself any definite rules other than a 5 year time frame, but I fully expect very little activity, if any in this portfolio.

I would welcome any comments you may have on this selection.

It would also be interesting to see any alternatives that you have.

Ian

(Note: My personal portfolio differs from this - but it is spread over a number of brokerage accounts in the UK and USA, has a number of option positions, and is skewed by history, so would not make a great example for a starter portfolio. But I do own stock in all the companies in my proposed ‘market-beating’ portfolio).

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Awesome, Ian, +1 for putting yourself and your picks out there!

Looking forward to your updated results over a period of years (not caring much how it does for a time period of months).

Hope you stay around that long. I own just over half of the stocks you picked (plus many others, obviously).

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My only criticism is actually admiration at your timing. I think you could not have chosen a better moment to make a bet that you can beat the S&P over the next five years. In other words, you are making it too easy for yourself. The Fed. has pumped enough helium into the market to levitate North America.

That being the case, I think you should instead select say five, 5-star, silver or gold, mutual funds from Morningstar (any type you choose) or you could include an ETF or two resembling your style, possibly SPHQ might fit the bill. (I have found SPHQ useful in seeing if I am any good.)

Needless to say, I demur at some of your stock choices (that’s what makes etc.) but fun to do. Good luck! You will not need luck with the S&P however: it will do all the work for you and carry you victorious over the line. In five years I doubt it will be higher than it is now.

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of all the stock you enumerated I like them all except for MIDD.

5 years is not very long. Stocks could languish in that time, go up and down and down or up…

There isn’t any guarantee that this collection will beat the market in that amount of time. They might or they might not.

If they are, it will not prove or show anything.If they don’t it will not prove or show anything either.

I think you are streaming from Bogle. Bogle had a good argument but he was not talking about beating the market but simply keeping up with it. A sample of 1 will not show that you can or you cannot beat the market simply by holding these stocks.

tj

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Ian,

Pretty cool. I’m curious if you back tested at all. My first thought was to wonder how these stocks (the ones that have been around) did from 2006 - 2010 vs the market.

Bear

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Beating the S&P500 is easy. A small-cap-value index will do that. In the last 90 years the S&P500 had returned 9.7% annually (dividends included) while the small-cap-value index did 14.4%.

Reference: http://www.marketwatch.com/story/8-lessons-from-80-years-of-…

Since 2000, the IJS ETF is tracking the performance of the S&P600 small cap value index. Over this 16 year period, it had outperformed the S&P500 index, 10% to 5% annually.

Reference: https://www.ishares.com/us/products/etf-product-list#!type=i…

Compare IJS to IVV which tracks the S&P500…

I think you should set your bar higher. Try to beat the IJS.

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I’m curious if you back tested at all

No, but I’ve followed most of these companies for some time, and I think you’ll find that the vast majority of the core selections have very strong track records.

Ian

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Hi Ian, I’m curious if you had any specific criteria? or whether you just picked stocks you “liked”?

(Note: My personal portfolio differs from this - but it is spread over a number of brokerage accounts in the UK and USA, has a number of option positions, and is skewed by history, so would not make a great example for a starter portfolio. But I do own stock in all the companies in my proposed ‘market-beating’ portfolio).

Also wondering why not set up a subset of you real investments in this portfolio? The reason I say this is that a real money portfolio is always different than a hypothetical one, because of the emotions involved when it is your real money.

Just as an example, the MF, which does great on just recommendation portfolios, tried two real money portfolios and just had to just close them because of poor results.
Saul

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“Since 2000, the IJS ETF is tracking the performance of the S&P600 small cap value index. Over this 16 year period, it had outperformed the S&P500 index, 10% to 5% annually.” … Numbersix

This observation seemed very interesting and made me want to verify it using the data from the table you 'url’ed.

The one, five and ten year performances of IVV are 3.94%,12.03% and 7.37%, the corresponding figures for IJS are 0.57%, 11.18% and 6.92%. This clearly contradicts your observation.

In fact, there are other index ETFs which are better than both IVV or IJS for certain periods if not all, making the choice of such a single ETF difficult. Possibly a combination of a few ETFs may be a solution.

Cheers
alpha

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In fact, there are other index ETFs which are better than both IVV or IJS for certain periods if not all

Past performance is not an indicator of future success.

:wink:

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Hi Saul,

I’m curious if you had any specific criteria? or whether you just picked stocks you “liked”?

I didn’t use any specific criteria in the sense that every stock in the portfolio could pass the same ‘test’. So there is no over-arching theme.

But to say that I just picked stocks I “liked” would not give an accurate impression either. Each stock has specific merits, but they are not always the same merits.

The core stocks, generally, are long-term compounding machines.

The growth stocks are stocks that I feel could be multi-baggers, but also carry more risk.

I have categorized CMG as a turnaround stock, which I think speaks for itself.

I intend to add a blog entry for each stock over the coming months entitled ‘The Case for XXX’ (where XXX could be AMZN for example). In the blog I will explain in detail why the stock made the list.

Also wondering why not set up a subset of your real investments in this portfolio?

The portfolio does represent a subset of my real investments in that I own all of the stocks to at least the value shown in the example portfolio, and if I sell the real stock to below the value shown in the portfolio and replace it, I will mirror that transaction in the published portfolio.

From a practical perspective it would be difficult for me to hold these in the same place in my actual accounts because I have some in a UK Sterling ISA account and some in a UK Sterling SIPP account - neither of which report the current dollar value or increase in a very user-friendly way. I also have some of the stocks in Schwab and IB accounts and in all cases the amounts differ (but exceed) the portfolio value. To try and separate out the gains/losses and dividends that would be attributable to the portfolio would be a nightmare, so instead I have created a CAPS account under a dummy name to track the gains and will manage it like that.

But at all times I will be holding the full portfolio as ‘real money’ somewhere - literally ‘putting my money where my mouth is’.

I will add a post to the board each month after I have updated the new portfolio value.

Ian

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To beat the market, invest in Eddie Elfenbein’s Crossing Wall Street portfolio.

http://www.crossingwallstreet.com

He is also manager of a ETF that follows his portfolio advice and its ticker is : CWS

DHeavy

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As a follow up to my post 1 month ago, I have updated the figures for my selected portfolio.

Not a great start - down 2.57%, but very early days and I’m not overly concerned.

You can see the update at:

http://www.digigrator.com/the-portfolio/

And my comments at:

http://www.digigrator.com/portfolio-progress-report-26th-oct…

Ian

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