How I Beat the Pants off the Pros Last Year

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There are lots of blogs that provide advice on saving money, and there are lots of blogs that provide advice on investing. Money Talks News is one of very few that does both.

While we devote the vast majority of our efforts to coming up with ideas on saving more and spending less, I also periodically tell you what I’m doing with my own savings. Because while finding ways to save is important, it’s only half the battle. What you do with those savings – how you invest – can mean the difference between getting by and getting rich.

With 2010 now in the history books, it’s time for a look back at my real-money, online portfolio to see how it did versus the market averages. Here are the numbers…

2010 Online Portfolio Performance
Shares 1/1/2010 12/31/2010 Gain $ Gain %
Coke 100 $57.00 $65.77 $877.00 15%
ConocoPhillips 300 $51.07 $68.10 $5,109.00 33%
GE 800 $15.13 $18.29 $2,528.00 21%
Caterpillar 300 $56.99 $93.66 $11,001.00 64%
Wells Fargo 300 $26.99 $30.99 $1,200.00 15%
JPMorgan Chase 200 $41.50 $42.42 $184.00 2%
NYSE Euronext 200 $25.30 $29.98 $936.00 18%
Gold ETF 100 $107.31 $138.72 $3,141.00 29%
Freeport McMoRan 100 $80.29 $120.09 $3,980.00 50%
Bank of America 400 $15.06 $13.34 -$688.00 -11%
Cliffs Natural Resources 350 $46.09 $78.01 $11,172.00 69%
Total $39,440.00 35%
Bought in 2010
Citicorp 3000 $4.31 $4.73 $1,260.00 10%
Huntington 2000 $5.68 $6.87 $2,380.00 21%
Corning 500 $16.67 $19.32 $1,325.00 16%
Total $4,965.00 15%
Sold in 2010
ADC Telco 2000 7.38 $12.75 $10,737.00 73%
Total gain for 2010 $55,142.00 34%
Gain since inception $92,086.50 75%

So my total gain in 2010 was 35 percent, and that’s without dividends. Include the dividends that I’ve received over the year, and my total return would probably be north of 36 percent.

The S&P 500 was up about 12 percent this year, so I beat it by 200 percent. Not only that, I also beat pretty much every high-priced mutual fund manager too. According to this article from TheStreet.com, the top performing large-company stock mutual fund this year was Morgan Stanley Focus Growth Fund, which returned about 25 percent.

Most of the stocks you see above, with the obvious exception of those purchased in 2010, I bought in the spring and summer of 2009. Total return as of Dec. 31, 2010, was $92,086 without dividends – 75 percent in less than two years on my total investment of about $123,000.

To better understand why some of my picks did so much better than others, see the recent post My Portfolio: Bashed by Banks, Cleaning Up on Commodities.

Things that didn’t help me beat the pants off Wall Street

The best part of this success story is that it didn’t take a lot of time or expertise. In fact, virtually anyone – at least anyone with $120,000 in long-term savings – could have done the same thing. By way of explanation, here’s a list of the things that didn’t contribute at all to my gains of this year.

  • CNBC: Networks that supposedly help investors by bombarding them with short-term information 24/7 would seem to provide an edge to small investors. Nothing could be further from the truth. By focusing on the trees, it’s easy to miss the forest. The long-term picture is the only thing that matters, and networks like this aren’t going to tell you to invest and then tune in five years from now. They may be the trader’s friend, but they’re the investor’s enemy.
  • Professional help: Wall Street firms spend millions on advertising to convince you that you need their wizardry to survive. This is complete hogwash. All you need is a basic opinion of where the U.S. economy is in its cycle of boom and bust, along with some long-term savings that you can drop into a few big companies or perhaps a mutual fund. I worked as a stock broker for three major Wall Street firms, and I can tell you unequivocally that the vast majority of “financial advisers” deserve no more credibility than any other salesperson – in other words, not much at all.

Things that did help me beat the pants off Wall Street

At the start of this post, I said this blog devotes a lot more cyber-ink to saving money around the house than investing. That’s because while there are thousands of ways to to save on consumer purchases, there are fewer tips needed to make those savings grow. For example, there’s no magic to the returns I achieved above. Here’s what I used to do it…

  • Experience: When I use the word “experience,” I’m not talking about my experience as a stock broker – if anything, that was counterproductive. I’m talking about life experience: the kind you get simply by being alive for a long time and paying attention. I’ve been investing in stocks for at least 30 years, so I’ve seen recessions and market declines before. But in the past, rather than taking the plunge when the market plunged, I sat frozen like a deer in the headlights, waiting for news that the economy was improving. Dumb, because by the time the recovery is obvious, the opportunity is gone. The portfolio above is proof that stocks move up months before economic numbers do. That’s why this time I didn’t wait: In the spring of 2009, when the world was teetering on the brink of economic collapse, I bought the stocks of quality companies that were getting hammered…companies like Caterpillar, Coke, GE, and the others you see above. The news at the time was terrible, but experience taught me that sooner or later it would get better. I’d decided years ago that I’d be damned if I was going to miss the next opportunity that came my way.
  • Keeping a long-term outlook: Like I said, when I bought most of the stocks you see above, the only news was bad. But I reasoned that if the world was coming to an end, I’m screwed anyway, since only canned food and guns would matter. But if it wasn’t, then stocks would come back someday before I needed the money. Since I was only 54 years old in 2009, that gave me at least 10 years to wait for a rebound. Happily, my stocks have already snapped back in less than two years. But if they hadn’t, while this post wouldn’t have been as fun to write, I’d simply be patiently waiting. The lesson? The risk you assume in investing in the American economy (i.e., the stock market) is inversely proportional to your time horizon. Investing for a day? The flip of a coin. Investing for a decade? Ducks in a barrel.
  • Buying quality: There are two kinds of risk in stocks. The first is timing – falling tides lower all ships. In other words, if the market crashes, all stocks will go down. Only a liar or a fool will claim dominance over this risk, because the world is a complicated place. Nobody can possibly know what will happen next or how it will affect the overall market. The second risk in stocks is bankruptcy risk – the odds that a company will go broke. While you can’t eliminate timing risk, you can pretty much eliminate bankruptcy risk simply by buying giant companies. I first bought GE, for example, at $7.60/share in 2009. While I could have been wrong in the timing – it could have gone lower, or taken years to come back – GE is highly unlikely to go to zero. Likewise with Caterpillar, Coke, the big bank stocks – nearly every stock I own. That increases my comfort level, since it then becomes a matter only of when the stock rebounds, not if.
  • Being diversified: The most apparent thing you’ll notice when you look at the stocks above is that some did way better than others. My biggest winner this year – Cliffs Natural Resources – was up nearly 70 percent. My worst performer – Bank of America – was down 11 percent. The more you can diversify, the safer your portfolio will be. If you don’t have enough long-term savings to buy into enough companies, you should use an exchange traded fund (ETF) or mutual fund.

This game isn’t over – I haven’t sold these stocks yet, and it’s possible that the market will tank and I’ll lose all the paper profits you see above. It’s also nearly guaranteed that these stocks won’t do as well in 2011 as they did in 2009 and 2010, which means these aren’t stocks you should buy today. (In fact, my picks are never meant as stock recommendations: See the warning I put in red on my portfolio page.) I mention them only to remain accountable and to provide a few lessons on investing. OK, and maybe to brag a little.

I’m likely to make a few changes in my portfolio in the days and weeks ahead, so if you find this stuff interesting, be sure to subscribe to our newsletter so you’ll get the updates. And if you’ve done some cool stuff with your savings over the last year, don’t just sit there – share! Leave a comment below.

Just getting started with saving or investing? Check out The 10 Commandments of Wealth and Happiness.

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  • http://pulse.yahoo.com/_XNBPOA2XWKUTNP5PE556HCM5WI joeblow

    there’s always something new & interesting on your website.
    Please continue to share your stock purchase & comments.
    What do you think about housing stock SPF ?