Say you follow someone on this board who is generous in offering their stock picks and investing insight. They tell you their annualized return over the last five years was 7.5% and their annualized return over the last ten years was 5.7%. The S&P 500 returned an annualized 15.4% and 7.7% for the respective periods. How would you rate their performance? Would you try to mirror what they do with your own investing?
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Say you follow someone on this board who is generous in offering their stock picks and investing insight. They tell you their annualized return over the last five years was 7.5% and their annualized return over the last ten years was 5.7%. The S&P 500 returned an annualized 15.4% and 7.7% for the respective periods. How would you rate their performance? Would you try to mirror what they do with your own investing?
Presumably you are in the process of making a point – possibly one with which I agree – in the sort of elliptical, deferred way that attorneys use when trying to trap their witnesses into an admission that is later, from the lofty heights of superior knowledge and intelligence, revealed to them.
Apparently this is not a set-up for some sort of Warren Buffet argument – the “Godwin’s Law” of the investing world – since he has, I believe, done much better than the figures you cite. Maybe you are setting up a point about one or both of the Gardner Brothers?
Personally, as a confirmed grouch, I prefer a more direct approach – just making the point one wants to make. So I will await, eagerly, chapter two, in which your point is revealed.
I apologize if you were in unlikely fact honestly asking that question, rather than setting up an argument in the fashion mentioned above. In that case, my answer would be, “It depends, but probably not, because I would not behave in such a way under any circumstance.”
LTC
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Return has to be considered in light of risk.
If that lesser return was achieved at virtually no risk it would be great. Because the good S&P 500 return will not look so good in the next bear market. And picking entry time at the top of a bull market it will look even worse. And whether you had to pay taxes on the larger return, because the only money of any use is that remaining after taxes and expenses.
But I think I know what you meant. Even considering that, a good return can be mostly due to luck. Because in fact there is no way to distinguish skill from luck in the stock market. Though skill gets more likely as the time period of outperformance extends.
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Though skill gets more likely as the time period of outperformance extends.
That raises an interesting question. Suppose I told you that someone had an annualized return of 21% over the last 22 years? Putting aside risk for a moment, how would you rate their performance? Before you answer that, suppose I also told you it was the same person who had the 7.5% annualized return over the last five years and 5.7% over the last ten years? How would that make a difference in your answer?
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Touche.
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I would suspect that they made some lucky or skillful 20 bagger early in their investing career.
I was able to retire early from my profession because I invested in Microsoft and Intel early in the PC revolution. And importantly because I kept them a long time. Since then I have been in early on a couple of stocks (AAPL for one) but chickened out when they hit a bump in the road, thus missing the multi bagger returns.
Since I was a lot younger then, and had good earning power,I didn’t worry that the MSFT and INTC composed almost my entire portfolio. Today, now that I am older and “know” more I probably would have sold them too soon. Part of being willing to concentrate portfolios is the believe that today’s expensive only mildly useful gadget will grow into something everyone will want (the PC).
Speaking of multi baggers, the two best performing stocks over the last 20 years were a railroad and an oven maker (MIDD). All these “change the world as we know it” technologies and these two prosaic sounding companies were the big winners. Who would have thunk…
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I would suspect that they made some lucky or skillful 20 bagger early in their investing career.
Yes, agree, that’s one possibility
Another possibility is avoiding a big drop. When the market went south in 2000-2002, it hurt many people. If you were able to avoid that – maybe even get a positive return during that period – well that would have a HUGE effect on overall returns years later, even if your returns were quite ordinary since then.
You made me laugh when you said you “know” more now that you are older. Been there.
Congrats on retiring early!
Thanks,
Ears