Just over a year of learning how to take control of my own investments, it is time to step back and give myself a critique to find out what I can learn from my own successes and mistakes. I provide this here for my own edification and your amusement. All feedback is welcome!
For reference, here is my six month self review:
http://discussion.fool.com/self-review-and-lessons-learned-32289…
Investing Goal:
My primary goal in investing in stock is a higher total portfolio return than I could get investing in index funds. My reasoning for this is simple: If I do not have a higher return than the index funds I would invest in, why bother spending the time to invest in individual stocks?
This means my real target is a mixture of two vanguard mutual funds:
Fund % Portfolio INDEX
===== =========== =======
VFIAX 30% S&P 500
VSMAX 70% CRSP1C (small-cap index)
That mixture would have been my starting point at the year and the allocation for new money coming in, but no rebalancing would have occurred. This gives a real number to compare my results against to evaluate if I am wasting my time or if investing in stock has a real benefit in my life.
My Performance:
Portfolio: **+9.72%**
S&P 500 : +9.54%
CRSPS1C : +16.44%
Target : **+14.55%** (adjusted for deposits)
I am satisfied with these results. I did not meet my own target criteria, however this was my first year taking full control of my own investing choices instead of simply trusting in index funds. This year also was a wild mix of good and bad investment events. Some of these I navigated to my benefit, others I ignored or miscalculated the potential impact.
It is also worth noting that until November, I had exceeded my target for most of the year, sometimes by a significant margin.
Year-End Portfolio Allocation
Stock Portfolio %
======= ===========
LGIH 16.9%
SWKS 12.3%
VFIAX 10.8%
SKX 7.5%
VSMAX 6.4%
BLL 4.7%
SHOP 4.4%
CASY 4.4%
MIDD 4.2%
PAYC 4.0%
BRK.B 3.9%
UBNT 3.7%
HUBS 3.7%
SBNY 3.6%
AMZN 3.6%
SSNI 3.0%
SNCR 2.5%
INFN 2.1%
ANET 1.8%
======= ===========
TOTAL **103.6%**
The total value greater than 100% represents use of margin.
Lessons Learned
With that out of the way, here are my thoughts on my own investment actions this year. What was good, what was bad and
what I can learn from both. (This what I see as I look back today and not a comprehensive list for the year)
Be quicker to get out when the story changes (INFN, SKX, SNCR)
My single biggest mistake this year was not getting out of INFN and SKX when the story changed. INFN was my #1 position at one point and I rode that entire position all the way down through three consecutive loosing quarters. No excuses. I should have sold after the first quarter showed my reason for investing does not match the current expectations for the company.
SKX has not been nearly as bad of a loss, however the stock has changed and it has been clear for a long time now there is no reason to hold the stock. My reasoning is the exact same as Saul’s, however I was slower to reach that conclusion and even now have only sold a portion of my investment.
SNCR was very kind to me with high returns this year but the story has changed as has been analyzed by this board. However, yet again I have been slow to sell.
(Harsh reality check: If not for my losses in INFN and SKX I would likely have easily made my investment target)
Don’t sell too quickly on bad news (INFN, SKX)
INFN has dropped as low as $7.23 and I held my full position at that time. I knew I needed to sell this stock as I saw no long-term growth. However, I also so no reason for a price quite that low either so I stayed with my full position. A month later I sold the majority of my INFN investment at $9.10 for a 25.86% gain over the low point.
SKX dropped to $18.98 at about the same time. Again, I knew I should not hold long term but it also seemed this was an overreaction. This time I even bought additional shares near $20. I sold half my position a month later at $26 for a gain of 36.84% over the low point.
I am satisfied with my decision in both cases. The only improvement I could have made would have been to sell my entire position at the noted points.
Don’t buy large positions, let positions become large through growth (INFN, SKX, LGIH)
I still consider my initial investments in INFN and SKX to be good choices given what I knew at the time. However, I did make a mistake in buying a very large position rather right away. In order to mitigate the potential risks I should have bought a smaller amount and let my investment grow (if it did) into something large. This is shown in counterpoint by my success with LGIH which I bought in more moderation but has grown in size to its current #1 position.
SBNY: Highlighting the importance of timing and tracking long term trends
I have been watching SBNY most of this year in spite of my extreme dislike for banks. I initiated my position at the end of August when I decided the taxi medallion fears were likely mostly in the past, which led to gratifying results in November. This timing was no accident. I watched the price be driven down amid continual fears while watching the general business improve. At the end of August it seemed they were nearing a turning point where the fears were diminishing and the successes were compounding.
Get my head out of the sand! (many stocks)
Way too often I ignored what was going on either with my own stocks or with stocks I had heard about and considered good possibilities for investment. If I am going to be investing in individual stocks I need to be paying attention. I need to be looking at good companies and I need to be taking a more harsh look at my current investments that are not performing. I had the time and expertise to accurately evaluate many stocks I ignored and accurately take advantage of opportunities. Instead I stuck my head in the sand and ignored everything. The opportunity cost of this was likely very large. I have sympathy for myself in this as I have had a highly enjoyable year and investing can be very dry and boring. Nonetheless I intend to pay closer attention in the future and react quicker.
Trust myself more often! (many stocks)
There have been many events throughout the year where I thought I should have bought a stock, sold a stock, or sold a portion of my position in a stock. I acted on perhaps 1 in 4 of these thoughts because I did not trust my inexperienced insights. However, closer to 3 in 4 would have been profitable choices. This mostly includes two types of events: Selling a portion (or all) of my investment after excessive exuberance (LGIH, SBNY) and taking advantage of general market bad news as a buying opportunity (brexit, November election).
Maintain diversity in my taxable account!
Most of my investments are in retirement accounts with a relatively small portion in a taxable account. I group all of these together when considering allocation, however I tend to put a portion of my best ideas into my taxable account. This has led to insufficient diversity in that account. While this has no impact on my overall return and long-term performance, it does mean higher risk when that account is viewed separately. The result of this is the potential for less real money to live off of today if I decide to live off my investments. INFN being one of my investments in this account highlighted this risk to me.
Risk Management Strategy: Successful!
I am entirely happy with my risk management strategy and how it has evolved throughout the year. I made mistakes in SKX, INFN, INBK and SEDG. My performance lagged severely in CASY, CRM, and SSNI. Yet overall I still achieved a reasonable rate of return for the year. Looking back, the only improvement I would have made would be to invest more money in my large stable companies (BRK.B and AMZN) when severe market events gave excellent entry points.
