Update: FWIW, stock-picking seems to work.
After three and a half months of the year, the three indexes that I’ve been comparing my portfolio to read like this for the year to date:
The S&P is up 4.0%
Russell 2000 is down 0.9%
IJS small cap value is down 4.2%
The average of the three is down 0.4%.
My un-average of 12 to 15 stocks is up 19.1% compared to that index average which is down 0.4%. There’s nothing fancy or unusual about my stocks. I’ve posted them every month. Now, you might think that my big gain is just because I was lucky enough to have picked Shopify (which had grown to 17.3% of my portfolio by Thursday’s close). However, guess what? Being up 19% is way bigger than that!
If you removed half my gain on Shopify I’d still be way, way, ahead of the indexes.
If you removed my entire gain on Shopify I’d still be way, way, ahead of the indexes.
If it was discovered tomorrow that the CFO was embezzling, and Shopify dropped by 20% in a day from $70.60 to $56.50, I’d still be way up from the average of the indexes.
If it was discovered that the CFO was embezzling and the company had been lying on its 10-K’s, and the stock price dropped by 50% from $70.60 to $35.30, I’d still be way ahead.
If it suddenly emerged that Shopify might be going bankrupt, causing the value of my largest investment to drop by 90% from $70.30 down to just $7, my entire portfolio would still be positive, up slightly for the year, in spite of that huge loss, and thus ahead of the average of the indexes. Think what that means: a 19.5% lead gives you an enormous cushion.
Intelligent stock picking can work, and can give you a huge leg-up on the indexes. It’s not dependent on just one stock. It does require paying attention, and work. You can’t be 19.5% ahead of the market in three and a half months with a portfolio of 100 stocks (simply because you are extremely unlikely to pick 100 stocks as good as your first 20 picks).
And you can have bad years. And I’m aware that with a couple of black swan events for a couple of my stocks this year could turn into a bad one. But in the long run you’ll win out if you work intelligently at it.
Just my opinion.
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