Tracking performance is essential to improving your process and I've done that since my earliest investing days, but what I have not been able to do as well is determine an appropriate benchmark. I use the SP500 by default, even though my portfolio looks nothing like it, because it represents the most accepted measure of "the market" at least for a US investor. I don't use a small cap index for comparison because I would never personally buy those indexes since they include so many junky companies that have proven themselves unable to get promoted to a larger cap index.
In 2024, I just missed outperforming the SP500, but I did so without ever owning Nvidia and Netflix (and a sincere congratulations to those of you who have owned those two for 10 years!) Does that mean I had a bad year or a good year in 2024? I think its too soon to tell. If Nvida has a 13 trillion market cap in 6 years, it will mean that every year I didn't own Nvidia was a bad one but if it stalls out at 5-6T, well then maybe I'm doing something right. We'll see.
In absolute terms, I'm certainly pleased. Yet, I cant help but wonder why I should spend all this time and effort investing in individual companies, when i could just buy the SP500? The quick answer is I enjoy it, but expending this effort is not rational if I don't meaningfully exceed the performance obtainable from the world's most followed index. In that case, I should buy SPY and go to the beach. The more complete answer is i don't believe the SP500 will keep going up 25% a year and that the next decade won't be as kind to the mag 7 as the last decade was, so my efforts picking individual companies will not be in vain, but only time will tell.
This conversation is great. I agree finding the right benchmark can be tricky for us investors. And then determining what is short term underperformance vs long term underperformance is another layer.
Way back when I first started I used to track what an alternative version (meaning passive) version of me would have invested in. It was something spilt into 4 ETFs of Canadian, American, Emerging Markets and International (mostly Asia). My thinking was that if I am not outperforming what I would have done by just buying the ETFs, I should do something more productive with my time.
Great post. Similar thoughts on sharing returns. To me it makes sense if you're running a newsletter or partaking in the community, but sharing quarterly performance is about as useful as daily performance. I want to know 2 things: that time-weighted return since inception on a daily basis, and your "stress/return ratio": https://fundooprofessor.com/2012/04/05/returns-per-unit-of-stress/
Good points on health, acknowledging different stages of wealth management (contributing, protecting, steadily withdrawing, etc).
These types of posts are great IMO
EDIT: I'm super proud of my learning, having achieved a ~21% CAGR since inception (time-weighted) with a return/stress ratio of 9.9 out of 10. I prioritize my health and relationships over work, and I'm almost 100% sure that there's no better way to live.
ANOTHER EDIT: Third thing I'd love to know from investors is how much they think is luck vs skill in their returns. For me, I know it's more luck than anything, but luck counts in this business (and it's more dangerous to disregard luck).
Thanks for the kind words. It may be an age thing, but thinking about longevity is something I don't hear many discuss. Just like I want to lift and be active in my 60s and 70s, I want to be able to pick stocks if that's something I enjoy. So thinking about time spent and stress is important.
I also want to know the skill vs luck dynamic for many investors. Like we put in a ton of work and must have some skill to outperform over something like 15 years. Or maybe we got lucky for a specific 5 year period and are just riding that outperformance. Pre-mortems are a way that I like to determine if my analysis is correct.
I share my results, even portfolio size, not to brag or sell something, but to attract people and ideas to me. Experience showed me that if you open up about details of your decision making process in investing, others will open to you. They will share their ideas with equal or greater level of rational explanations why those ideas might be good (not just a name mention). They will even point out to some of potential flaws in your reasoning, which also can have great monetary and self development value. Investing is a lonely activity if you don't come from a background where you either did not have a mentor (or mentors) and if you have started with your own, instead of inherited fortune. This way, I get to exchange ideas with people who manage millions. Interestingly enough, my family and friends have no idea about any of this. Even to my wife, I just mention that "our son's company", how I refer to portfolio, is worth this and that much once every year or so.
To me this tells me you have a growth mindset. Willing to share and take feedback at something that wasn't handed to you. I agree, investing is lonely at times. There certainly isn't much discussion of cash flows at the gym. lol
I usually mention the company's in generalities like the fungus one, the oil thing, paper co and that turd that I shouldn't have bought.
Tracking performance is essential to improving your process and I've done that since my earliest investing days, but what I have not been able to do as well is determine an appropriate benchmark. I use the SP500 by default, even though my portfolio looks nothing like it, because it represents the most accepted measure of "the market" at least for a US investor. I don't use a small cap index for comparison because I would never personally buy those indexes since they include so many junky companies that have proven themselves unable to get promoted to a larger cap index.
In 2024, I just missed outperforming the SP500, but I did so without ever owning Nvidia and Netflix (and a sincere congratulations to those of you who have owned those two for 10 years!) Does that mean I had a bad year or a good year in 2024? I think its too soon to tell. If Nvida has a 13 trillion market cap in 6 years, it will mean that every year I didn't own Nvidia was a bad one but if it stalls out at 5-6T, well then maybe I'm doing something right. We'll see.
I don't feel too bad about underperforming the benchmark when the benchmark returns a whopping ~25% in a year.
In absolute terms, I'm certainly pleased. Yet, I cant help but wonder why I should spend all this time and effort investing in individual companies, when i could just buy the SP500? The quick answer is I enjoy it, but expending this effort is not rational if I don't meaningfully exceed the performance obtainable from the world's most followed index. In that case, I should buy SPY and go to the beach. The more complete answer is i don't believe the SP500 will keep going up 25% a year and that the next decade won't be as kind to the mag 7 as the last decade was, so my efforts picking individual companies will not be in vain, but only time will tell.
This conversation is great. I agree finding the right benchmark can be tricky for us investors. And then determining what is short term underperformance vs long term underperformance is another layer.
Way back when I first started I used to track what an alternative version (meaning passive) version of me would have invested in. It was something spilt into 4 ETFs of Canadian, American, Emerging Markets and International (mostly Asia). My thinking was that if I am not outperforming what I would have done by just buying the ETFs, I should do something more productive with my time.
Dean
Great post. Similar thoughts on sharing returns. To me it makes sense if you're running a newsletter or partaking in the community, but sharing quarterly performance is about as useful as daily performance. I want to know 2 things: that time-weighted return since inception on a daily basis, and your "stress/return ratio": https://fundooprofessor.com/2012/04/05/returns-per-unit-of-stress/
Good points on health, acknowledging different stages of wealth management (contributing, protecting, steadily withdrawing, etc).
These types of posts are great IMO
EDIT: I'm super proud of my learning, having achieved a ~21% CAGR since inception (time-weighted) with a return/stress ratio of 9.9 out of 10. I prioritize my health and relationships over work, and I'm almost 100% sure that there's no better way to live.
ANOTHER EDIT: Third thing I'd love to know from investors is how much they think is luck vs skill in their returns. For me, I know it's more luck than anything, but luck counts in this business (and it's more dangerous to disregard luck).
Thanks for the kind words. It may be an age thing, but thinking about longevity is something I don't hear many discuss. Just like I want to lift and be active in my 60s and 70s, I want to be able to pick stocks if that's something I enjoy. So thinking about time spent and stress is important.
I also want to know the skill vs luck dynamic for many investors. Like we put in a ton of work and must have some skill to outperform over something like 15 years. Or maybe we got lucky for a specific 5 year period and are just riding that outperformance. Pre-mortems are a way that I like to determine if my analysis is correct.
I share my results, even portfolio size, not to brag or sell something, but to attract people and ideas to me. Experience showed me that if you open up about details of your decision making process in investing, others will open to you. They will share their ideas with equal or greater level of rational explanations why those ideas might be good (not just a name mention). They will even point out to some of potential flaws in your reasoning, which also can have great monetary and self development value. Investing is a lonely activity if you don't come from a background where you either did not have a mentor (or mentors) and if you have started with your own, instead of inherited fortune. This way, I get to exchange ideas with people who manage millions. Interestingly enough, my family and friends have no idea about any of this. Even to my wife, I just mention that "our son's company", how I refer to portfolio, is worth this and that much once every year or so.
To me this tells me you have a growth mindset. Willing to share and take feedback at something that wasn't handed to you. I agree, investing is lonely at times. There certainly isn't much discussion of cash flows at the gym. lol
I usually mention the company's in generalities like the fungus one, the oil thing, paper co and that turd that I shouldn't have bought.
Thanks for commenting