Beating the Market

Investment Analysis Clubs Saul’s Investing Discussions
1

There was some discussion on the board a year and a half ago about whether it was possible / easy / difficult to consistently beat the market.

At some point I suggested that it was easy to beat the market by simply choosing a portfolio of quality businesses and holding for the long term.

After a while I thought that, having made this suggestion, I should back it up.

I came up with a portfolio of $25,000 that would aim to beat the market over a 5 year timeframe (post 21799).

My last update was in September (post 31991).

The portfolio I proposed was as follows:


                            Value at      %       Value at
                            Sept 2016   Change.   March 2018

Adobe Systems (ADBE)         962.19     101.12     1,935.16
Amazon (AMZN)              2,405.40      86.53     4,486.79
Bank of Internet (BOFI)    1,006.65      76.35	   1,775.23
Broadridge Financials (BR) 1,024.50	 57.36     1,612.15
Casey's Gen. Stores (CASY) 1,054.89	 -7.27       978.20
Chipotle (CMG)               825.46     -21.91       644.60
Disney (DIS)               1,017.17       9.05     1,109.22
Facebook (FB)              1,018.96	 25.14     1,275.13
Google (GOOGL)             1,619.64      26.76     2,053.06
Mastercard (MA)            1,008.20      72.29     1,737.03
Middleby (MIDD)            1,496.28      -1.65     1,471.59
Mitek (MITK)                 994.48      -4.61       948.63
Markel (MKL)               1,845.04      24.85     2,303.53
Universal Display (OLED)   1,000.96	 79.02     1,791.92
Starbucks (SBUX)             977.04       6.73     1,042.79
Shake Shak (SHAK)            987.00	 14.01     1,125.28
Shopify (SHOP)               991.76	228.53     3,258.23
Transdigm (TDG)            1,724.40	 25.15     2,158.09
Tesla (TSLA)               1,032.50      46.02     1,507.66
Under Armour (UA)          1,019.20     -59.74       410.33
Visa (V)                     985.80      43.98     1,419.35

Totals                   $24,997.52      40.19%  $35,043.97

S&P Gain                                 20.01%

Difference                               20.18%

Although a 40.19% annual return is rather humble compared to some of the results reported on this board - I’m quite satisfied. Especially so, because I didn’t have a great start. The portfolio trailed the S&P by 2.17% after one month and then 7.22% after two months. But it has gradually made ground from there to be 20% ahead of the S&P today.

(In order to track the portfolio performance accurately including dividends etc. I use a CAPS account.)

This is a long term buy and hold portfolio. I have not made any sales or additions since inception and it is unlikely that I will do so in the foreseeable future unless something extraordinary happens.

The portfolio is ‘real money’ in the sense that I do hold long positions in all of the stocks in my own portfolio to at least the value shown. But my holdings are not in the same proportion as in the example portfolio. I have much heavier weightings for BOFI and TSLA, for example. Some of my positions are held through options.

I also hold stocks and some option positions that are not in the portfolio. Over the last 18 months I have started positions in BABA, CGNX, MELI, SQ, NVDA and ANET, and more recently small positions in TCEHY and JD. I have some UK and European stocks, some ETFs, odd small holdings, and rump positions that serve as a reminder of past mistakes.

If you are curious about any of my picks, please feel free to fire away and I will answer as best I can.

I will post another update in 6 months.

Ian

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2

Interesting portfolio.

You write,"Although a 40.19% annual return is rather humble compared to some of the results reported on this board - I’m quite satisfied. Especially so, because I didn’t have a great start. "

Am I correct in thinking that the gain of 40.19% is over a period of 18 months? Still quite impressive.

alpha

3

Ian,

Thanks for posting this. I am so impressed with the way you approached investing, how you
came up with your strategy, the strategy itself, and how you are implementing it. I loved your
discussion of risk in your book. In a world seemingly obsessed with returns, it’s refreshing to
see how you integrate risk into your strategy. I’m going to recommend your book to my kids.

I believe your five year window is the minimum Mr. Buffett suggested in his partnership letters
to assess the robustness of a strategy. My take is that you’re making it too hard on yourself because
of the arbitrary start and end dates. On the other hand, perhaps five years will be enough time for
compounding to overcome the effects of randomness, given you are not doing any buys and sells.

Have you considered using rolling returns as an adjunct to your fixed start and end to give a
different perspective?

Great job, thanks again –
Ears

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